PremiumThe company’s petchem business has emerged as a star performer in the March quarter. On a standalone basis, Ebit of the petchem segment jumped as much as 40% vis-à-vis the December quarter to ₹609 crore
Shares of Gail (India) Ltd have performed well in this calendar year, appreciating by 32% so far. In comparison, the Nifty 100 index has risen by 14.5% during the same time-frame.
One reason for the optimism is the strength in crude oil prices. “We have raised our FY22-23 Ebitda by 14-15% to account for strong petrochemicals (petchem)/ liquefied petroleum gas (LPG) margins and Brent crude price rising to $60 per barrel (from $55 per barrel)," said analysts at JM Financial Institutional Securities Ltd in Gail’s March-quarter results review report on 10 June. Ebitda is earnings before interest, tax, depreciation and amortization.
“The recovery in crude price has improved earnings visibility in its gas trading and downstream businesses, constituting 40-50% of its overall Ebitda," the broking firm said.
However, while the outlook for Gail’s earnings seems to be fairly upbeat, given firm crude prices, the outperformance in the stock may limit meaningful upsides in the near term.
The company’s petchem business has emerged as a star performer in the March quarter. On a standalone basis, earnings before interest and tax (Ebit) of the petchem segment jumped as much as 40% vis-à-vis the December quarter to ₹609 crore. This is at a time when petchem sales volume increased just 1% sequentially. The performance was helped by price realizations, which was 13% more than the December quarter. Some analysts expect petchem volumes to be adversely impacted in the June quarter, given the restrictions in place to contain the covid-19 pandemic. Even so, if crude prices stay firm, the profitability of the segment may be strong.
The company’s LPG and liquid hydrocarbons business also performed well during the March quarter, reporting an Ebit growth of nearly 68% to ₹474 crore. Even as sales volume declined sequentially, higher realizations aided the segment’s performance.
Gail’s natural gas marketing segment also reported profit at the Ebit level after three consecutive quarters of loss.
Overall, Gail’s Ebitda remained flattish on a year-on-year basis at ₹2,565 crore. As such, the company has seen a consistent improvement in its Ebitda, after touching a low in the locked-down June quarter.
In its March-quarter earnings conference call, Gail’s management indicated to analysts that two pipelines have been identified to be monetized through the InvIT route. The company is awaiting the government’s approval on this. “Monetization of pipelines through InvITs may drive value unlocking in the near term," said analysts from Kotak Institutional Equities in a report on 11 June.
The broking firm has raised its FY22-23 earnings per share estimates for Gail by 7% and revised its sum-of-the-parts fair value of the stock to ₹190 per share. The Gail stock closed at ₹163 apiece on the National Stock Exchange on Tuesday.
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