Sunday, July 4, 2010

Gail Buy on declines for a target of 525

GAIL reported impressive year-on-year topline growth of 9.09 per cent to Rs 27,035.30 in FY10, largely driven by transmission revenues. Natural gas transmission revenues aided by KG basin grew a healthy 27.63 per cent, while LPG transmission revenues grew 17.58 per cent during the fiscal.

The year saw 28 per cent y-o-y growth in gas transmission to 106.74 MMSCMD. Fourth quarter alone saw a gas transmission increase by 115 mmscmd. Net sales in Q4 FY10 grew in line with estimates to Rs 6,522.12 crore, marking 6.42 per cent y-o-y growth.

Operating profit for the year grew 23.97 per cent and operating margins surged 242 basis points. The growth at PBIT level for transmission of natural gas was 40.12 per cent and for LPG at 25.79 per cent. Fourth quarter marked operating profit growth of 37.52 per cent (Increase of Rs 359.26 crore). Further upside was restricted in the backdrop of transmission tariff being less at Rs .72/scm compared to last year’s Rs 0.88 /scm.

Net profit growth (y-o-y basis) for the full year ended March 2010 was robust at 18 per cent with consolidated profit at Rs 3,292.29 crore compared to Rs 2,790.05 in FY09. Profit margin also showed improvement of 89 bps. Consolidated fourth quarter net at Rs 9,10.82 crore grew a healthy 44.57 per cent from Rs 630.02 crore in Q4FY09.

Petrochem business has shown good growth and is about 11.5 per cent contributor to overall revenues. Other revenue contributors for Gail like LPG and liquid hydrocarbons segments (contributing 10.48 per cent to total revenues) have shown de-growth of 4.5 per cent over FY09.

While the city gas distribution grew good 23.72 per cent and holds promise, it is still a small business segment (2.64 per cent contribution in overall revenues). Thus, going ahead, transmission services still hold the key to overall revenues and the growth registered is encouraging. However, transmission tariffs have to be watched carefully for margin expansions.

The crude prices have again started spiraling and likely to go up from present $72 per barrels. “Given our crude price assumption of $80/bbl for FY11E-12E, we model for GAIL’s subsidy payout to be higher by 15 per cent – 30 per cent over FY10,&" states an Ambit Capital report.

The stock moved up 1.7 per cent to Rs 440 levels today and trades at 16 times FY10 earnings.

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