Target: ₹154
CMP: ₹117.70
GAIL India (GAIL) has delivered another strong performance in Q2FY24, with EBITDA up 2x YoY to ₹3,490 croreand PAT up 56 per cent YoY to ₹2,400 crore, well ahead of our EBITDA/PAT estimates of ₹2,700 crore/₹1,800 crore. Stronger transmission earnings (buoyed by 12mmscmd YoY and 4mmscmd QoQ uptick in volumes), 40% higher tariff YoY (due to new integrated tariffs being applied from 1st Apr’23) and 4.9x YoY improvement in trading EBITDA (up 76 per cent QoQ) helped offset continued weakness in petrochemical and muted LPG earnings.
FY24-26 is likely to see multiple drivers of outperformance: Stronger tariffs and higher transmission volumes; trading segment on track to meet guidance of ₹4,000 crore EBITDA; and Costs for petrochemical and LPG should reduce materially over FY24E, while pricing is at all-time lows, posing an upside risk to realisations. Valuations of just 7.3x FY25E EPS and 6.6x FY25E EV/EBITDA are attractive and we expect earnings upgrades and multiple re-ratings over the next 12 months.
Risks: Sharply lower gas consumption trends; Higher gas price impact on petrochemical/LPG segment; reduction in pricing gap between US LNG and Asia spot LNG prices.