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Gail India: Gas trading segment continues to drive profitability

ICICI Securities 07 Feb 2022

What’s buzzing? – Gail India reported Q3FY22 results that were better than estimates on account of higher-than-expected EBIT from gas trading, gas transmission and petchem segments.

Context:

Gail's revenue grew 66.7% YoY to Rs 25769.8 crore in Q3FY22. Gas transmission volumes were up 3.6% YoY to 114.3 mmscmd and gas trading volumes were at 96.6 mmscmd, up 1% YoY. Higher transmission volume led to gas transmission EBIT at Rs 977.5 crore vs. our estimate of Rs 912 crore. On the gas trading front, EBIT of Rs 1749.7 crore was ahead of our estimate of Rs 1224.6 crore following a surge in spot LNG prices. Petrochemical segment reported EBIT of Rs 364.6 crore, higher than our estimate of Rs 298.2 crore, mainly due to higher-than-expected volume as well as lower-than-expected costs. The LPG/LLH segment EBIT was below estimates at Rs 855 crore (our estimate: Rs 964.4 crore) as volume was lower-than-expected while costs were higher than estimates. Subsequently, EBITDA was at Rs 4228.1 crore, up 120.3% YoY. Reported PAT was at Rs 3288 crore, up 121.1% YoY.

Our perspective:

Gail's gas transmission volumes during Q3FY22 improved YoY. Transmission volume is also expected to pick up steadily with commissioning of fertiliser plants. As spot LNG prices continue to remain higher, we expect gas trading segment to report healthy profits in the near term. LPG & petchem are expected to report healthy profitability on account of higher crude realisation. Higher earnings visibility for the gas trading segment along with steadily growing gas transmission and CGD business augur well for the company.

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