For 4QFY2012, GAIL India (GAIL) reported a lower-than-expected performance. The company’s net sales grew by 17.6% yoy, whereas its EBITDA and adjusted PAT contracted by 43.0% and 38.3%, respectively, due to higher subsidy burden. Nevertheless, we continue to maintain our Buy rating on the stock.
Top line in-line with expectation, up 17.6% yoy: GAIL’s top line grew by 17.6% yoy to Rs.10,455cr, in-line with our estimate of Rs.10,697cr, mainly due to strong growth in the natural gas trading segment (up 27.5% yoy to Rs.9,121cr). However, gas transmission volumes decreased by 3.9% yoy to 115.6mmscmd during 4QFY2012 and the company’s share of fuel subsidy burden increased by 55.2% yoy to Rs.1,397cr in 3QFY2012.
EBITDA down by 43.0% yoy: EBIT of the natural gas trading and petrochemical segment declined by 38.8% and 1.3% yoy to Rs.166cr and Rs.431cr, respectively. Consequently, GAIL’s EBITDA declined by 43.0% yoy to Rs.734cr and EBITDA margin contracted by 746bp yoy to 7.0% in 4QFY2012.
Higher other income mutes bottom-line decline: Other income increased by 337.7% yoy to Rs.230cr; however, tax rate increased to 33.9% in 4QFY2012 compared to 31.2% in 4QFY2011. Consequently, net profit declined by 38.3% yoy to Rs.483cr, much below our estimate of Rs.798cr.
Outlook and valuation: Over the past five years, GAIL has traded at an average one-year forward PE of 16.0x, while currently it is trading at a PE of 9.1x FY2013E and 8.7x FY2014E. On a P/B basis, the stock trades at 1.6x FY2012E and 1.4x FY2013E, compared to its five-year average P/BV of 2.7x. Further, considering the anticipated volume growth in the next three years, we maintain our Buy rating on the stock with an SOTP target price of Rs.389.