Dear All,
Forwarding you the Result Update on GAIL India for 4QFY2011 with a Buy recommendation and a Target Price of `539 (12 months).
For 4QFY2011, GAIL’s reported numbers were below our expectations on the bottom-line front (dipped by 14% yoy to `783cr against our estimate of `935cr) as the government increased upstream subsidy-sharing burden (GAIL paid `902cr subsidy against the expectation of `715cr). However, operationally the company reported a decent performance during the quarter as volumes increased in the natural gas (NG) transmission, NG trading and petrochemical segments. Thus, excluding the subsidy surprise, the company’s performance was decent during the quarter. We maintain our Buy recommendation on the stock.
Growth registered across segments, but higher subsidy disappoints: GAIL reported top-line growth of 36.4% yoy during the quarter, primarily on the back of good yoy performance by the NG transmission, NG trading and petrochemical segments. The NG transmission segment registered top-line growth of 23.4% yoy, whereas the NG trading segment reported robust top-line growth of 53.4% yoy. The petrochemical segment also fared well with robust sales volumes registered during the quarter. However, the company’s margin contracted by 588bp yoy to 14.3% (20.2%), mainly on account of higher subsidy burden and staff cost, which led to a decline of 3.4% yoy in operating profit to `1,272cr (`1,317cr).
Outlook and valuation: The substantial capex to be incurred on transmission pipelines could see maximum capitalisation on the back of incremental gas production domestically. Average marketing margin earned on trading of NG is expected to stabilise. We believe the city gas distribution (CGD) and upstream businesses could be value-accretive in the long run. We maintain our Buy rating on GAIL with an SOTP target price of `539.
Kindly click on the following link to view the Report.
If you have any further queries, feel free to call us on 022 39357600, Extn: 6865 or mail us at advisory@angelbroking.com
With best regards,
Fundamental Advisory Desk
Angel Broking
Akruti Star,6th Floor, Road No.7,MIDC, Andheri (E),Mumbai – 93.
Call : (91) (022) 39357600 Ext. 6865
Website : www.angelbroking.com
Disclaimer: Ours is an advisory role. The final decision and consequences based on our information is solely yours. Moreover, in keeping with regulatory guidelines, we do not guarantee any returns on investments. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice.
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