GAIL India Q3 Results Review - Strong Operating Performance Amid Rich Valuation: Systematix

Systematix Research Report

GAIL India Ltd.’s result beat our estimates again due to the positive surprise from gas marketing, LPG, and petrochemical businesses.

Gas transmission/trading volume jumped 17%/9% YoY to 121.5/98.1 million metric standard cubic metre per day largely in line with estimates.

The implied tariff was flattish QoQ (+36% YoY) led by tariff revision. Gas trading business calculated Ebitda came at Rs 20.7 billion versus Rs 19.5 billion QoQ. Also, LPG nd petrochemical segmental profits saw a sharp jump in profits to Rs 2.1/2.8 billion in Q3 FY24 versus a loss of Rs 2.1 billion/60 million respectively led by higher utilisation (petchem utilisation at 100%) and higher LPG prices.

Overall, GAIL India's Ebitda/profit after tax grew 9.5%/18% QoQ to Rs38/28 bn during the quarter. We are raising our Ebitda/PAT estimates by 14.5%/12.3% for FY24E and 7%/5.7% for FY25E to factor in higher trading and liquefied hydrocarbon profits.

Further, we introduce FY26E financials and forecast Ebitda/PAT compound annual growth rate of 30%/25% during FY23-FY26E. We also rolled over our SOTP-based target price to FY26E and came out with a revised target price of Rs 182 from an earlier Rs 135.

We raised our multiples by one notch as well owing to the better business dynamics across segments owing to lower spot LNG price, higher LPG price, and better petchem utilisation.

However, the stock has seen a sharp run-up of over 40% in the last three months and therefore, we are downgrading the stock to 'Hold' from earlier 'Buy'.

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