GAIL's Q4FY18 results (Outperformer) - Q4 a miss, but still set for a stellar FY19-20E
Q4FY18 result highlights
- GAIL reported a PAT of Rs10.2bn, 3x Q4FY17 reported PAT but adjusted for extraordinary items, recurring PAT of Rs10.4bn has declined 1% yoy, below estimates of Rs13.8bn. EBITDA of Rs17bn has grown 9% yoy, below IDFCe Rs21.3bn.
- EBIT of Rs17.1bn (+14% yoy, IDFCe Rs21bn). Miss vs estimates driven by higher gas costs in Petchem/ lower margins in gas trading (both of which were due to higher spot LNG prices) and lower transm vols.
- Higher spot LNG prices due to some Dominion cove cargoes not being received (4 cargoes or 0.2mt) for the quarter were the main cause of higher costs in petchem segment.
- LPG transmission volumes increased 8% yoy to 982kt, gas transmission vols were up 5% yoy to 106mmscmd, Gas trading vols up 8% to 89mmscmd, Petchem sales up 3% to 191kt while LPG + Liquid HC vols were up 17% yoy to 324kt.
- FY18 EBITDA/PAT has grown 19/21% respectively
Key positives: Volume strength across segments, strong LPG earnings
Key negatives: Higher costs in Petchem segment, lower trading margins
Impact on financials: FY19 unchanged FY20E EPS reduced 2%, TP reduced to Rs410/sh.
Valuations & view
The operational and regulatory environment for GAIL is conducive for the company’s strong growth over FY19-20E. Recent events like the PNGRB establishing quorum, spike in LPG prices and the imminent inclusion of Gas in GST combine will create multiple drivers for sustained growth across GAIL’s businesses over next 3 years. We estimate 20% EPS CAGR over FY18-20E on the following: 1) 12-15% revision in transmission tariffs, 2) higher Petchem and LPG volumes, 3) moderate gas costs for the two segments and 4) potential to claim input tax credit for the LPG/Petchem segment. With Management clearly confirming that for FY19 >85% of USD LNG volumes have been sold with ~60% sold for FY20E as well, the overhang of the same should reduce further. We find multiples of 9x FY20E PER/ 5.5x EV/E (excluding Rs74/sh of listed investment) at compelling levels. Reiterate outperformer.
Gail India is engaged in the natural gas, liquified natural gas ("LPG"), liquid hydrocarbons and petrochemicals exploration and production and city gas distribution through its natural gas trunk pipelines covering a length of around 7000 km and over 1900 km of LPG pipeline transmission network. Co. is also engaged in the telecom business with the network of approx. 13,000 km throughout India. Co. operates six primary business segments: Transmission Services, Natural Gas Trading, Petrochemicals, LPG and other Liquid Hydrocarbons, GAILTEL and City Gas Distribution.
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