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MOSL: GAIL (Buy)-Doing good, expecting even better

GAIL: Doing good, expecting even better – reiterate Buy

(GAIL IN, Mkt Cap USD8.6b, CMP INR143, TP INR200, 40% Upside, Buy)

 

 

• GAIL reported an EBITDA in line with our estimate, as better performance in Gas Trading and LPG and Liquid HC business offsets lower profitability in the Petchem segment (impacted due to the planned shutdown in 1QFY22).
• The management guided that the Petchem plant is currently operating at over 100% utilization and will achieve 100% utilization in FY22, despite the lower utilization rate in 1Q.
• In the current high spot LNG price environment (JKM forward curve at USD15-16/mmbtu, up from USD10/mmbtu in 1QFY22), the company expects the Trading segment to do even better in 2Q.
• Transmission volumes, which were lower in 1QFY22 (108mmscmd, -2% QoQ on account of a lower offtake by a few customers), have recovered back to ~115mmscmd at present. The management expects 8-10mmscmd of volume growth in FY22 from the commissioning of fertilizer plants, aiding domestic placement of trading volumes.
• GAIL has enjoyed alignment of operational macros since the start of CY21. We expect macros to support the company (as discussed above) over the next couple of quarters as well.
• Valuing the core business at 10x Sep’23E adjusted EPS of INR15.7 and adding investments, we arrive at our TP of INR200/share. The stock is trading at 8.8x FY23E P/E and 5.7x FY23E EV/EBITDA. We reiterate GAIL as our top pick in the largecap O&G space.