GAIL: All-round show leads to robust Q4, analysts upgrade estimates

Transmission volumes didn't face impact of lockdown

GAIL (India)’s better-than-expected performance in  the March quarter (Q4) of 2019-20 (FY20) impressed the Street and pushed up the firm’s stock by over 2 per cent on Thursday, when leading indices closed marginally lower.

This was driven by good operating performance across segments. Analysts say, 

higher realisation in the petrochemicals, LPG, and liquid hydrocarbon segments helped. Gas transmission volume, which was flat at 109 mmscmd (million metric standard cubic meter per day), too, wasn’t hurt by the lockdown, as was expected.

Consolidated revenue at Rs 17,938 crore, thus, was better than consensus estimate of Rs 16,668 crore. Segments such as gas marketing, transmission, LPG, hydrocarbons, and city gas saw 15-82 per cent jump in profit before interest and tax. Petrochemicals turned around and posted a profit after recording a loss a year ago and in the previous quarters. With the petrochemicals plant running at full capacity, lower cost of inputs, such as gas, helped.

Consequently, earnings before interest, tax, depreciation, and amortisation (Ebitda) at Rs 2,842 crore, up 62 per cent year-on-year (YoY), also beat the estimate of Rs 1,920 crore. The higher profit contribution from joint ventures helped. Profit before tax was up 47 per cent YoY to Rs 2,556 crore, while lower taxes and tax adjustments led to a 169 per cent surge in net profit at Rs 3,018 crore, much higher than the Street estimate of Rs 1,335 crore.

 

 

The strong performance has encouraged analysts, who are now revising estimates. The rebound in gas demand, which touched 90 per cent of normal levels after a significant decline in April, too, is positive for demand as are lower gas prices.

However, there are some concerns around the placement of ‘take or pay’ US gas contracts. Delivered price of US LNG to India is estimated to exceed the delivered price of spot LNG by $4 per mmbtu (million British thermal units) in FY21-to-date, say analysts at ICICI Securities. Hence, there are some concerns around the 30 per cent of unplaced contracts. This can put some pressure on gas trading in FY21.

As gas demand recovers some lost ground by winter season, GAIL’s Jagdishpur-Haldia pipeline will also come onstream, lifting supply to fertiliser and city gas customers. 

Analysts at HDFC Securities estimate gas transmission volumes to grow 9 per cent annually during FY21-23, led by better pipeline connectivity, revamp of fertiliser plants (customers), and benign gas prices. They have increased GAIL’s earnings estimates for FY21 and FY22 by 178 per cent and 26 per cent, respectively.