GAIL (India) Ltd. share price target

10 February 2020 During 9MFY20, GAILs performance was hampered by poor gas trading, petrochemicals and LPG business; however, the transmission business fared well owing to increase in implied transmission tariffs. The management has guided for incremental volumes of ~2mmscmd from Ramagundam, ~2.5mmscd from Matix, and ~4mmscmd from Kochi- Mangalore pipeline from 1QFY21, and 8-9mmscmd in Jagdishpur-Haldia pipeline in FY22; which reiterates our thesis from our This company guides that with start of all fertilizer plants, no US HH contract would be sold outside India. Trading at ~40% discount to long-term 1-year forward P/E of 14.0x, GAIL offers an excellent investment opportunity. GAIL reported EBITDA miss of 18% at INR20.7b (-22% YoY), led by poor LPG and liquid hydrocarbon performance, while petchem saw some marginal improvement after reporting a huge loss in 1QFY20. PBT was at INR18.7b and the company paid tax at rate of 33.2% during the quarter. GAIL is still in the process of evaluating the new tax rate option.

5 February 2020 the Oil Ministry has moved the cabinet, seeking approval to split GAILs pipeline business into a separate entity. Post approval, a consultant will be appointed to carry out the transfer of assets to a separate entity (taking additional ~8-10 months to complete). GAIL did not start executing the Jagdishpur-Haldia-Bokaro-Dharma (JHBDPL) pipeline until it received approval for Viability Gap Funding (VGF) of ~40% of the estimated INR129.4b project cost. Similarly, Indradhanush Gas Grid Limited (IGGL) has recently got VGF approval of ~60% of the estimated INR92.7b pipeline cost. If GAILs transmission segment is sold off, it remains unclear if a private player is willing to invest in a low IRR pipeline business or if the government is willing to assist them with cardinal VGF. GAILs natural gas (NG) transmission volumes in FY19 stood at 107.4mmscmd (capacity utilization at 52.

Gail India reported Q2FY20 results that were below our estimates on the profitability front. The profitability of gas transmission came in above our estimates on operational basis. The gas trading business was impacted by the fertilisers plant shutdown and fall in LNG spot prices globally. The profitability of petchem and LPG segments was below estimates. Subsequently, EBITDA at | 1562.7 crore (down 46.6% YoY), came in below our estimates of | 2008.8 crore. Reported PAT at | 1064.3 crore (down 45.8%...

As the domestic NG ecosystem (CGD network, RLNG terminals, PLs, revamp of fertiliser plants) develops, India will derive higher benefit from the low LNG prices. New US liquefaction terminals will boost RLNG exports and also keep Henry Hub (HH) prices subdued, enabling GAIL to swap cargoes. Thus, US LNG is not a concern. Our SOTP target is Rs 198 (7.5x Sep-21E EV/e for the stable Gas and LPG transmission busi., 5.0x EV/e for the volatile gas marketing busi., 6.5x EV/e for the cyclical petchem and LPG/LHC busi., Rs 39 for investments and Rs 11 for CWIP). Given GAILs dominant position in Indias gas pipeline network and high share of volume in the upcoming eastern corridor pipeline, its transmission business will drive future earnings. Maintain BUY.

GAIL's Q2FY20 PAT was well below estimates at Rs 10.6bn (42% YoY).

ECLX: Cost control saves margins; no respite from structural challenges. GREENP: Healthy quarter; better capacity utilisation to fuel growth. SUNP: Headline beat on low R&D;, US base ex-Taro weaker; REDUCE. IGL: Margins expand, volume growth robust

Markets rally on US-China trade deal

29 August 2019 The completion of three fertilizer plants along the Jagdishpur-Haldia- Bokaro-Dhamra pipeline (JHBDPL), combined with the contribution from Matix Fertilizer start-up and Mangalore Chemicals and Fertilizers (MCFL) conversion, is likely to de-risk ~60% of total US Henry Hub (HH) contracts. The completion of three urea plants (Gorakhpur, Sindri and Barauni) by Hindustan Urvarak & Rasayan (HURL) in addition to Ramagundam Fertilizers and Chemicals is expected to add 9.4mmscmd of marketing volumes for GAIL over the next 3-4 years. The start-up of Matix Fertilizer and the conversion of Mangalore Chemicals and Fertilizers from naphtha to gas could add 3.1mmscmd of sales. ONGCs KG-DWN-98/2 is expected to commence gas production in Dec19, which is likely to ramp up to ~14mmscmd by FY22. Considering that most potential users in the KG basin are power plants that may not be able to take high cost KG basin gas, even 70% routing of KG basin gas to west coast could boost transmission volumes of GAIL by 29%.

operating profits to Rs 2357.61 crore. Cost of material consumed as a percentage of adjusted net sales fell 60 bps to 5.5%. Purchase of stock in trade was up 60 bps to 72.8%. Employee benefit expense rose 20 bps to 2.4%. Other expenses fell 20 bps to 6.3%. Other income was up 30% to Rs 159.9 crore. As a result PBDIT increased 2% to 2517.2 crore....

Gail India reported a mixed set of numbers for Q1FY20. The better profitability of gas trading and gas transmission business was negated by lower profitability from the petchem segment and LPG segment. EBITDA at | 2259 crore (flattish YoY)) came in line our estimates of | 2124.8 crore. Subsequently, the reported PAT at | 1287.5 crore (up 2.2% YoY) also came...