CLSA has a buy call on GAIL (India) with a target price of Rs 435.
The current market price of GAIL (India) is Rs 378.25.
Time period given by the asset management firm is one year when GAIL (India) price can reach the defined target.
CLSA's view on the company:
US LNG drives sharply higher gas trading profits and lower opex; BUY Gails 1QFY19 net profit was 23 per cent higher at Rs12.6bn. This beat was primarily driven by benefits from rising volume of attractively-priced US LNG cargoes in the form of notably higher gas trading profit and lower petchem opex. Mgmt guides to these benefits continuing. Gail also expects volumes to improve in petchem as well as LPG transmission after one-off factors impacted 1Q. We raise EPS by 4 per cent and TP to Rs435 (Rs405); BUY. Inclusion of gas in GST, tariff hike for DUPL, curb on petcoke use and more city gas wins are triggers in 2H.
A 23 per cent beat on net profit; Ebitda/Ebit stood 19/23 per cent higher as well: At Rs12.6bn (+23 per cent YoY/QoQ), Gails standalone 1QFY19 net profit was a notable 23 per cent ahead of our estimate. Ebitda (Rs25.3bn, +27 per cent YoY/+22 per cent QoQ) stood 19 per cent ahead and Ebit was 23 per cent more than our estimate. Higher other income was offset by higher depreciation and larger-than-anticipated tax rate.
All segments outperform other than gas transmission: Nearly two-third of Ebit surprise was driven by a massive 95 per cent beat on gas trading Ebit due to 9 per cent higher volumes and a 216 per cent YoY jump in unit trading margin to a 10-quarter high of Rs624/scm mainly due to rising share of US and Russian LNG volumes. One-fourth of Ebit surprise came from 112 per cent beat in petchem Ebit, which rose 5.7x QoQ. This beat was completely due to a surprise US$53/tonne QoQ decline in petchem opex even as price for RasGas LNG rose QoQ. Management explained that this was due to high share of cheaper Russian and US LNG volumes in the input mix. Petchem realisation was slightly lower, while volume was 10 per cent lesser as one-off factors impacted 1Q production. LPG production Ebit was 5 per cent higher, as lower volumes were more than offset by slightly better realisation and notably lower opex. Gas transmission Ebitda missed by 1 per cent but Ebit was 4 per cent below as some recent capitalisation drove up segment depreciation. Gas transmission volume was in-line at 107mmscmd. Lower LPG transmission volumes (-8 per cent QoQ) due to shutdown of a customer facility was more than offset by higher blended tariffs and segment Ebit was 3 per cent ahead.
Raise EPS by 4 per cent and target to Rs435/share; reiterate BUY: In its post-results conference call, Gails management highlighted that gains due to US LNG volumes in the form of higher gas trading profits and lower input costs for petchem are sustainable. This arbitrage of ~US$1.5/mmbtu for US LNG over spot Asian LNG could clearly be a tailwind for Gail (link). Management also highlighted that petchem capacity utilisation is now at 90 per cent and this should bring further opex efficiency. Building these benefits, we raise EPS by 4 per cent and target to Rs435. Reiterate BUY. We expect gas in GST within six months, which could add c.Rs35 to fair value/Rs3.5 to EPS. A tariff hike for DUPL pipeline, more wins in ongoing city gas bidding round by Gail or its subsidiaries/JVs and potential actions to curb use of petcoke are other possible 2H18 triggers.
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