2QFY2016 Result Update | Oil&Gas
November 19, 2015
Gail (India)
NEUTRAL
CMP
`309
Performance Highlights
Target Price
-
Standalone (` cr)
2QFY16
2QFY15
yoy%
1QFY16
qoq%
Investment Period
-
Net sales
14,165
14,130
0.2
14,271
(0.7)
EBITDA
844
2,022
(58.2)
643
31.2
Stock Info
Margin (%)
6.0
14.3
(835)bp
4.5
145bp
Sector
Oil & Gas
Reported PAT
441
1,303
(66.2)
511
(13.8)
Market Cap (` cr)
39,253
Source: Company, Angel Research
Net Debt (` cr)
5,133
Gail reported a weak set of numbers for 2QFY2016 with the EBITDA coming in
Beta
1.0
52 Week High / Low
502 / 260
18% below our estimate. While overall volumes were in line with our expectations,
petchem volumes surprised positively, increasing by 68% qoq. The revenue for the
Avg. Daily Volume
12,94,280
quarter, at `14,165cr, is in line with our estimate of `14,271cr. Gas trading
Face Value (`)
10
realisations declined 4% yoy but increased 6% sequentially. In Petchem, increase
BSE Sensex
25,483
in volumes were partially offset by 8% dip in realisations. Gas transmission
Nifty
7,732
revenues posted a strong growth of 15% qoq led by a 3% qoq_increase in
Reuters Code
GAIL.BO
volumes and 10% qoq_jump in realisations.
Bloomberg Code
GAIL IN
The EBITDA declined 58% yoy to `844cr and is 17% below our estimate of
`1,022cr. The sharp decline was on account of lower profitability across segments
Shareholding Pattern (%)
excluding the gas transmission business. EBITDA loss in the Petchem segment
Promoters
56.1
continued to worsen led by unavailability of low priced gas. Depreciation and
MF / Banks / Indian Fls
23.9
interest expenses jumped 36%/79% yoy led by the commissioning of the new
FII / NRIs / OCBs
16.4
facilities at Pata. Other income increased, led by dividend income of `163cr. The
Indian Public / Others
3.6
Net profit declined 66% yoy to `441cr, 18% below our estimate of `536cr.
Outlook and valuation
Abs. (%)
3m 1yr
3yr
We expect petchem volumes to drive revenues going forward. However, with
Sensex
(8.4)
(9.5)
39.2
crude prices to remain weak, we expect Petchem and gas margins to remain
GAIL
(6.3)
(36.8)
(10.7)
under pressure. Negotiations over the RasGas contract are currently adding to the
uncertainty. However, any success in those negotiations and resumption of gas
3-year price chart
supplies would be a positive for the company. We retain our Neutral view on the
600
stock.
500
400
Key financials (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016E
FY2017E
300
200
Revenue
47,523
57,508
56,742
61,069
68,206
100
% chg
17.5
21.0
(1.3)
7.6
11.7
0
Adj. net profit
4,029
4,143
3,002
2,633
3,173
% chg
10.2
2.8
(27.5)
(12.3)
20.5
Adj. EPS (`)
31.8
32.7
23.7
20.8
25.0
Source: Company, Angel Research
OPM (%)
13.5
11.6
8.3
7.1
7.6
P/E (x)
9.8
9.0
12.9
14.9
12.4
P/BV (x)
1.6
1.4
1.3
1.3
1.2
RoE (%)
17.5
17.1
10.8
8.8
10.1
RoCE (%)
18.0
15.6
9.8
8.2
9.8
Rahul Dholam
EV/Sales (x)
1.0
0.8
0.8
0.8
0.7
Tel: 022- 3935 7800 Ext: 6847
EV/EBIDTA
7.2
7.0
10.2
11.2
9.2
[email protected]
Source: Company, Angel Research; Note: CMP as of November 18, 2015
Please refer to important disclosures at the end of this report
1
Gail (India) | 2QFY2016 Result Update
Exhibit 1: 2QFY2016 performance (Standalone)
(` cr)
2QFY16
2QFY15
yoy%
1QFY16
qoq%
FY2015
FY2014
yoy%
Net sales
14,165
14,130
0.2
14,271
(0.7)
56,742
57,508
(1.3)
Raw material
11,775
10,803
9.0
10,871
8.3
45,394
45,451
(0.1)
% of net sales
83.1
76.5
76
80.0
79.0
Employee Cost
258
233
10.8
202
27.5
955
905
5.5
% of net sales
1.8
1.6
1
1.7
1.6
Other expenditure
1,288
1,072
20.2
2,554
(49.6)
5,706
4,463
27.9
% of net sales
9.1
7.6
18
10.1
7.8
Total expenditure
13,321
12,107
10.0
13,627
(2.3)
52,055
50,819
2.4
% of net sales
94.0
85.7
95
91.7
88.4
EBITDA
844
2,022
(58.2)
643
31.2
4,687
6,689
(29.9)
Margin (%)
6.0
14.3
5
8.3
11.6
(337bp)
Interest
164
92
78.5
91
78.9
361
366
(1.3)
Depreciation
323
237
36.3
253
27.6
968
1,171
(17.3)
Other income
302
289
4.5
259
16.4
927
1,250
(25.9)
Exceptional items
0
0
0
0
0
Profit before tax
660
1,983
(66.7)
558
18.2
4,284
6,402
(84.9)
% of net sales
4.7
14.0
4
7.6
11.1
Tax
219
680
(67.7)
48
359.6
1,245
2,027
(38.6)
% of PBT
33.2
34.3
9
29.1
31.7
Adj. PAT
441
1,303
(66.2)
511
(13.8)
3,039
4,375
(30.5)
Source: Company, Angel Research
Exhibit 2: Standalone - 2QFY2016 Actual vs. estimates
(` cr)
Actual
Estimates
Variation (%)
Net sales
14,165
14,271
(0.7)
EBITDA
844
1,022
(17.4)
EBITDA margin (%)
6.0
7.2
(1.2bp)
Net profit
441
536
(17.9)
Source: Company, Angel Research
Result highlights
Revenue and volumes in line with estimate; margins hurt
Gail reported a weak set of numbers for 2QFY2016 with EBITDA coming in 18%
below our estimate. While overall volumes were in line with our expectations,
petchem volumes surprised positively, increasing by 68% qoq. The revenue, at
`14,165cr, is in line with our estimate of `14,271cr. Gas trading realisations
declined 4% yoy but increased 6% sequentially. In Petchem, increase in volumes
were partially offset by 8% dip in realisations. Gas transmission revenues posted a
strong growth of
15% qoq, led by a
3% qoq increase in volumes and
10% qoq_jump in realisations.
November 19, 2015
2
Gail (India) | 2QFY2016 Result Update
Exhibit 3: Volume mix remains stable
Exhibit 4: Revenues in line with estimate
18,000
35
100%
90%
16,000
30
7
7
80%
6
6
14,000
25
7
7
7
5
4
5
70%
12,000
20
60%
10,000
15
50%
8,000
10
40%
6,000
5
30%
4,000
0
20%
10%
2,000
(5)
0%
0
(10)
Gas Trading
Gas Transmission
Other
Revenue (` cr)
yoy change (%)
Source: Company, Angel Research
Source: Company, Angel Research
The EBITDA declined 58% yoy to `844cr, 17% below our estimate of `1,022cr. The
sharp decline was on account of lower profitability across segments excluding the
gas transmission business. EBITDA loss in the petchem segment continued to
worsen led by unavailability of low priced gas. Depreciation and interest expenses
jumped 36%/79% yoy led by the commissioning of new facilities at Pata. Other
income increased led by dividend income of `163cr. The Net profit declined
66% yoy to `441cr, 18% below our estimate of `536cr.
Exhibit 5: Petchem volumes increased 68% qoq
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
Gas Transmission (mmscmd)
99
95
96
95
97
91
94
86
87
90
LPG Transmission ('000 MT)
699
729
855
863
832
701
773
788
689
687
Gas trading (mmscmd)
82
79
80
76
77
69
74
69
69
74
Petrochemicals ('000 MT)
121
108
109
107
87
110
112
132
50
84
LPG & Liquid Hydrocarbons ('000 MT)
350
337
332
289
324
322
330
303
278
255
Source: Company, Angel Research
Exhibit 6: EBITDA margin dips sharply
Exhibit 7: Other income boosts net profit
2,500
14.3
14.4
16.0
1,600
9.0
9.3
10.0
14.0
1,400
9.0
11.7
2,000
6.7
8.0
10.5
12.0
1,200
6.6
10.0
6.3
7.0
8.3
10.0
1,000
1,500
7.8
6.0
4.7
6.6
8.0
800
5.0
6.0
3.7
3.6
3.4
1,000
3.1
4.0
4.5
6.0
600
3.0
4.0
400
500
2.0
2.0
200
1.0
-
0.0
-
0.0
EBITDA (` cr)
Margin (%)
Net Profit (` cr)
Margin (%)
Source: Company, Angel Research
Source: Company, Angel Research
November 19, 2015
3
Gail (India) | 2QFY2016 Result Update
Investment arguments
Petchem capacity expansion to drive revenues
Gail is expanding its Petchem capacity at Pata from 410TMT to 810TMT by
4QFY2016. This will help the company expand its market share significantly in the
Petchem segment going forward. Its subsidiary Brahmaputra Cracker & Polymer
(BCPL) is also setting up a 0.28MMTPA HDPE/LLDPE and Polypropylene plant.
ONGC Petro Additions Ltd (Gail -15.5% stake) is adding a 1.1MMTPA ethylene
and 0.4MMTPA propylene plant. Led by these additions, the company expects to
raise its market share to ~30% by FY2018 from ~15% currently. We expect these
projects to help the company drive revenues going forward.
Well poised to benefit from any increase in gas supplies
Gail with the largest pipeline network of 11,000km is well poised to benefit from
any increase in gas supplies. Demand for gas continues to remain strong and we
expect the bottlenecks in the gas supply issues to be cleared in the coming years.
Domestic gas production has also fallen resulting in huge under-utilisation of
Gail’s pipeline network.
November 19, 2015
4
Gail (India) | 2QFY2016 Result Update
Outlook and valuation
We expect Petchem volumes to drive revenues, going forward. However, with
crude prices expected to remain weak, we expect Petchem and Gas margins to
remain under pressure. Negotiations over the RasGas contract are currently
adding to the uncertainty. However, any success in those negotiations and
resumption of gas supplies would be a positive for the company. We retain our
Neutral view on the stock.
Company background
GAIL (India) Ltd, a Maharatna company, is engaged in transport through pipeline;
manufacture of basic chemicals, fertilizer and nitrogen compounds, plastics and
synthetic rubber in primary forms; extraction of crude petroleum; extraction of
natural gas and electric power generation, transmission and distribution. The
company’s segments include Transmission services, Natural Gas Trading,
Petrochemicals, LPG and other Liquid Hydrocarbons, and City Gas Distribution.
The company markets Gas Processing Unit (GPU) products namely Liquefied
Petroleum Gases (LPG), Propane, Pentane, Naphtha and by-products of polymer
plant namely MFO, Propylene & Hydrogenated C4 Mix.
November 19, 2015
5
Gail (India) | 2QFY2016 Result Update
Profit & loss statement (Standalone)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016E
FY2017E
Net Sales
47,523
57,508
56,742
61,069
68,206
% chg
17.5
21.0
(1.3)
7.6
11.7
Total Expenditure
41,111
50,819
52,055
56,742
63,042
Raw Materials
36,309
45,451
45,394
48,856
54,565
Power & Fuel Cost
1,243
1,676
1,884
2,027
2,264
Employee Cost
858
905
955
1,028
1,148
Other Expenses
2,701
2,786
3,823
4,832
5,065
EBITDA
6,412
6,689
4,687
4,328
5,164
% chg
15.0
4.3
(29.9)
(7.7)
19.3
(% of Net Sales)
13.5
11.6
8.3
7.1
7.6
Depreciation& Amortisation
981
1,171
968
1,061
1,114
EBIT
5,431
5,519
3,719
3,266
4,050
% chg
13.5
1.6
(32.6)
(12.2)
24.0
(% of Net Sales)
11.4
9.6
6.6
5.3
5.9
Interest & other Charges
195
366
361
365
369
Other Income
822
1,250
927
834
851
Profit before tax
6,058
6,402
4,284
3,735
4,532
% chg
13.4
5.7
(33.1)
(12.8)
21.3
Tax Expense
2,036
2,027
1,245
1,102
1,360
(% of PBT)
33.6
31.7
29.1
29.5
30.0
Reported PAT
4,022
4,375
3,039
2,633
3,173
Adjusted PAT
4,029
4,143
3,002
2,633
3,173
% chg
10.2
2.8
(27.5)
(12.3)
20.5
(% of Net Sales)
8.5
7.2
5.3
4.3
4.7
November 19, 2015
6
Gail (India) | 2QFY2016 Result Update
Balance sheet (Standalone)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016E
FY2017E
SOURCES OF FUNDS
Equity Share Capital
1,268
1,268
1,268
1,268
1,268
Reserves & Surplus
22,959
25,804
27,851
29,152
30,993
Shareholders Funds
24,228
27,072
29,120
30,421
32,262
Total Loans
9,064
10,268
9,556
10,556
9,556
Deferred Tax Liability
2,300
2,566
3,309
3,419
3,555
Other Long term liabilities
1,045
1,175
2,658
2,791
2,931
Total Liabilities
36,636
41,082
44,642
47,187
48,303
APPLICATION OF FUNDS
Gross Block
31,149
33,192
40,464
44,510
46,736
Less: Acc. Depreciation
11,442
12,553
13,539
14,600
15,714
Net Block
19,707
20,639
26,925
29,910
31,022
Capital Work-in-Progress
8,978
9,728
4,360
3,924
3,532
Goodwill
0
0
0
0
0
Investments
3,719
4,289
4,322
4,366
4,409
Current Assets
9,037
11,133
10,619
11,695
13,087
Cash
2,358
2,651
1,142
1,170
1,229
Inventories
1,557
2,278
2,105
2,217
2,489
Debtor
2,551
2,812
3,095
3,118
3,572
Other
2,571
3,392
4,278
5,191
5,798
Current liabilities
8,069
8,752
8,275
9,466
10,572
Net Current Assets
967
2,381
2,345
2,230
2,516
Other Assets
3,265
4,046
6,690
6,757
6,825
Total Assets
36,636
41,082
44,642
47,187
48,303
November 19, 2015
7
Gail (India) | 2QFY2016 Result Update
Cash flow statement (Standalone)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016E FY2017E
Profit before tax
6,058
6,402
4,284
3,735
4,532
Depreciation
1,020
1,180
981
1,061
1,114
Change in Working Capital
(638)
(817)
(1,957)
143
(226)
Others
107
30
46
66
72
Direct taxes paid
(1,513)
(1,874)
(855)
(992)
(1,224)
Cash Flow from Operations
5,033
4,922
2,499
4,014
4,268
(Inc.)/ Dec. in Fixed Assets
(5,500)
(3,855)
(1,868)
(3,610)
(1,833)
(Inc.)/ Dec. in Investments
(406)
11
43
(43)
(44)
Others
434
612
805
0
0
Cash Flow from Investing
(5,472)
(3,232)
(1,020)
(3,654)
(1,877)
Issue of Equity
0
0
0
0
0
Inc./(Dec.) in loans
3,717
756
(911)
1,000
(1,000)
Dividend Paid (Incl. Tax)
(1,430)
(1,499)
(1,332)
(1,332)
(1,332)
Others
(421)
(653)
(746)
0
0
Cash Flow from Financing
1,865
(1,397)
(2,989)
(332)
(2,332)
Inc./(Dec.) in Cash
1,427
293
(1,509)
28
60
Opening Cash balances
931
2,358
2,651
1,142
1,170
Closing Cash balances
2,358
2,651
1,142
1,170
1,229
November 19, 2015
8
Gail (India) | 2QFY2016 Result Update
Key Ratios
Y/E March
FY2013
FY2014
FY2015
FY2016E
FY2017E
Per Share Data (`)
Reported EPS
31.7
34.5
24.0
20.8
25.0
Adjusted EPS
31.8
32.7
23.7
20.8
25.0
Cash EPS
39.4
43.7
31.6
29.1
33.8
DPS
9.6
10.4
6.0
6.0
6.0
Book Value
191.0
213.4
229.6
239.8
254.3
Valuation Ratio (x)
P/E (on FDEPS)
9.8
9.0
12.9
14.9
12.4
P/CEPS
7.8
7.1
9.8
10.6
9.2
P/BV
1.6
1.4
1.3
1.3
1.2
Dividend yield (%)
3.1
3.4
1.9
1.9
1.9
EV/Sales
1.0
0.8
0.8
0.8
0.7
EV/EBITDA
7.2
7.0
10.2
11.2
9.2
EV/Total Assets
1.3
1.1
1.1
1.0
1.0
Returns (%)
ROCE
18.0
15.6
9.8
8.2
9.8
ROE
17.5
17.1
10.8
8.8
10.1
Turnover ratios (x)
Asset Turnover (Gross Block)
1.7
1.8
1.5
1.4
1.5
Inventory (days)
11.5
12.2
14.1
12.9
12.6
Receivables (days)
17.1
17.0
19.0
18.6
17.9
Payables (days)
57.2
53.4
54.8
53.0
53.6
WC cycle (ex-cash) (days)
(11.1)
(5.3)
3.0
6.8
6.3
Solvency ratios (x)
Net debt to equity
0.3
0.3
0.3
0.3
0.3
Net debt to EBITDA
0.7
0.7
0.9
0.9
0.9
Interest Coverage (EBIT / Int.)
27.8
15.1
10.3
9.0
11.0
November 19, 2015
9
Gail (India) | 2QFY2016 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]om
Website: www.angelbroking.com
DISCLAIMER
Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,
Bombay Stock Exchange Limited and Metropolitan Stock Exchange of India Limited. It is also registered as a Depository Participant with
CDSL and Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is
a registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number
INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing
/dealing in securities Market. Angel or its associates including its relatives/analyst do not hold any financial interest/beneficial
ownership of more than 1% in the company covered by Analyst. Angel or its associates/analyst has not received any compensation /
managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. Angel/analyst
has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity
of the company covered by Analyst.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
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have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement
Gail (India) Ltd
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
November 19, 2015
10