Q3FY23 Review: GAIL: Weak performance

31 Jan 2023 , 12:44 PM

GAIL’s Q3FY23 PAT fell by 93% YoY to Rs2.5bn — well below forecasts. Weaker-than-expected performance of Transmission business, clubbed with the maiden loss in Gas trading business this FY, was the key reason for earnings miss. Transmission volumes were lower 9% YoY, as supply disruptions from Gazprom continue. Gas marketing volumes fell by 7% YoY, due to elevated LNG prices that along with inventory valuation loss of Rs11bn, led to loss in trading business. Lower capacity utilisation of Petrochemical business (lower availability of gas) led to spike in opex/MT and the resultant loss. Transmission business accounted for ~90% of the overall Ebitda.

GAIL shared: 1) Gazprom is still unable to meet the 2.5mmtpa supply contract for which it is rationing ga to customers. Partly-shutdown petchem units and blending spot LNG to meet minimum contractual obligations. 2) It is trying to secure additional long-term LNG contracts for which discussions are in place. 3) All key projects are progressing well, to be completed in phases through FY24/FY25.4) It expects tariff revision of pipelines by PNGRB from April 2023. 5) Capex for the quarter was Rs23bn and the target for FY23/FY24 is Rs75-80bn. 6) it expects gradual normalisation of volumes in FY24.

Analysts at IIFL Capital Services cut GAIL’s FY23ii/FY24ii EPS by 13%/7%, to reflect the earnings miss in Q3FY23 and muted outlook ahead. The 93% YoY fall in 3Q earnings was due to weaker-than-expected performance of its Transmission business and loss in LNG trading (inventory loss of Rs11bn). The stock trades inexpensively (1x FY24 BV), but lacks triggers. Changes in pipeline tariff, and possible additional LNG contracts (key for earnings in Commodity business) are potential positive triggers.

Analysts at IIFL Capital Services maintain Buy with target price of Rs 107.