MOSL: GAIL INDIA (Neutral)-EBITDA miss led by lower petchem earnings, pay hikes

​GAIL India: EBITDA miss led by lower petchem earnings, pay hikes

(GAIL IN, Mkt Cap USD9.8b, CMP INR391, TP INR358, 9% Downside, Neutral)

4QFY17 EBITDA declined 10% QoQ (+36% YoY) to INR15.3b (est. of INR18.4b), led by lower petrochemical earnings and higher employee cost of INR4.7b (est. of INR2.9b; +108% YoY, +77% QoQ) due to pay revisions (7th Pay Commission). Reported PAT was impacted by provision for impairment loss of INR7.9b out of carrying investment of INR9.7b in JV entity; adjusted PAT stood at INR10.5b (est. of INR11.1b; +36% YoY, +8% QoQ). For FY17, EBITDA grew by 59% YoY to INR63b and adj. PAT by 66% YoY to INR38b. Management recommended final dividend of INR2.7/share for FY17.

Segmental analysis: Gas transmission below est.; Petchem volume ramp-up continues

• Gas transmission EBIT declined 17% QoQ (+16% YoY) to INR5.2b, primarily due to lower volumes at 102mmscmd (est. of 104 mmscmd; +6% YoY, -1% QoQ), flat implied tariff QoQ and higher opex (+11% YoY, +18% QoQ).
  
• Petchem EBIT of INR673m (-162% YoY, -50% QoQ) is believed to be impacted by higher gas cost. Sales volumes stood at 186KT (+27% QoQ) and production at 175KT, implying ~77% utilization.
  
• LPG & liq. HC segment showed improvement in EBIT to INR5b (+206% YoY, +34% QoQ), benefiting from higher realizations of USD515/MT (v/s USD429/MT in 4QFY16) and lower opex of USD206/MT (v/s USD328/MT in 4QFY16).