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Trading shines, Petrochem disappoints GAIL’s numbers are not comparable with our estimates or previous year/quarter numbers due to the retrospective impact of the recent tariff revisions. The company reported net operating income of INR193b, EBITDA of INR29.3b and PAT of INR19.6b.
Segmental analysis: Gas trading shines, Petrochem disappoints
* Gas transmission EBIT stood at INR8.9b. It includes the retrospective impact of the Petroleum and Natural Gas Regulatory Board’s (PNGRB) tariff orders. Transmission volume stood at 106mmscmd. A retrospective gain amounting to INR1b for the previous quarter was booked in 2QFY19.
* Gas trading volume stood at 96mmscmd. EBIT came in at INR10.4b – includes one-time gain of INR1.33b on account of favorable settlement with a power consumer.
* Petrochem sales stood at 183tmt. EBIT came in at INR1.7b.
* LPG and HC sales stood at 338tmt. EBIT stood at INR7.7b.
Valuation and view
* The company reported 1HFY19 EPS of INR14.3. We estimate EPS of INR29.4 for full-year FY19.
* PNGRB is considering tariff revision for the main pipelines of GAIL (HVJ & HVJ upgradation). These account for ~60% of total gas transmission. We estimate that 40% increase in base tariff would result in ~13% increase in FY20 EPS.
* The stock trades at 10.9x FY20E EPS of INR34.0. We value GAIL using SOTP at INR371/share. The core business is valued at 9x FY20E EPS, adjusted for other income. Maintain Neutral.
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