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Gail India: Increase in realisation across segments drives profitability

What’s buzzing – Gail India’s Q2FY22 results were better than estimates on the profitability front mainly owing to sharp rebound in gas trading profits.

Context – Gail’s revenue increased 57.7% YoY to Rs.21511 crore as gas transmission and trading volume improved by 7% and 10% YoY respectively. Also, Petchem & LPG/LLH realisation was sharply higher. Lower than expected costs coupled with higher volume led to gas transmission EBIT at Rs.1040 crore. Gas trading EBIT of Rs. 1078.9 crore was well ahead of our estimates following sharp rise in spot LNG prices. Petrochemical segment reported EBIT of Rs.363.3 crore, higher than our estimate of Rs.297.3 crore mainly due to higher-than-expected volume. The LPG/LLH segment results were below estimates at Rs. 682.3 crore with realisation as well as volume being lower than expected. EBITDA at Rs.3475.1 crore (up 159.7% YoY and 44.1% QoQ), was above our estimate on account of better than expected profitability mainly in gas transmission and gas trading segments. The company reported higher than expected other income at Rs.774 crore. Reported PAT at Rs.2862.9 crore, up 130.9% YoY and 87.1% QoQ (our estimate: Rs.2158.2 crore).

Our perspective - Gail's gas trading and transmission volumes during Q2FY22 improved and are expected to report steady growth going ahead. Petchem segment's performance was better than anticipated mainly due to higher volume. We expect reasonable profits from petchem segment in the coming quarters. On account of sharp increase in spot LNG prices, we expect gas trading segment to report higher profits over the medium term. We have a positive view on the stock on account of steadily growing gas transmission and CGD business and sharp earnings recovery in trading & petchem segments.