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

Realisations surprised positively, and transmission volumes too, didn't see significant impact of lockdown

GAIL’s better-than-expected performance for the March quarter (Q4) impressed the Street and pushed up its stock by more than 2 per cent on Thursday, when leading indices closed marginally lower.

The beat was driven by better operating performance across segments. Analysts say, higher realisation in the petrochemicals, LPG and liquid hydrocarbon segments helped. Simultaneously, gas transmission volumes, which were flat at 109 mmscmd (million metric standard cubic meter per day), too, didn’t feel the heat due to the lockdown as was being expected.

Consolidated revenue at Rs 17,938 crore, thus, was better than consensus estimates of Rs 16,668 crore. Segments such as gas marketing, transmission, LPG and hydrocarbons and city gas saw 15-82 per cent jump in profit before interest and tax (Ebit). Petrochemicals turned around and posted a profit after recording a loss in the year ago and previous quarters. With the petrochemicals plant running at full capacity utilisation, 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, also beat estimates of Rs 1,920 crore. The higher profit contribution from joint ventures also helped. Profit before tax was up 47 per cent year-on-year 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 Street estimate of Rs 1,335 crore.

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

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 unit) in FY21-till-date, say analysts at ICICI Securities. Hence, there are some concerns around the 30 per cent of unplaced contracts. This can put some pressure of gas trading segment in FY21.

As gas demand recover some lost ground by winter season, GAIL's Jagdishpur-Haldia pipeline will also come on stream 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.