GAIL shares down 2% after Q4 results miss but CLSA retains optimism for 18% upside

Shares of GAIL (India) Ltd. declined on Friday, May 22, after the company reported a weak set of earnings in the fourth quarter. The results were reported after market hours on Thursday.

Apart from its revenue, the company's earnings were lower than estimates across all other parameters.

GAIL's revenue increased 21% to ₹34,773 crore from the previous quarter's ₹24,050 crore. The figure was also higher than CNBC-TV18 poll's ₹33,266 crore.

The company's profit after tax (PAT) declined by 21.2% to ₹1,262 crore from ₹1,603 crore sequentially. It was also lower than street expectations of ₹1,325 crore.

Earnings before interest, tax, depreciation and amortisation (EBITDA) declined 56.6% to ₹1,152 crore from ₹2,655 crore in the previous quarter, also below street estimates of ₹2,342 crore.

The company's margins contracted sharply to 3.3% from 7.8% sequentially. The CNBC-TV18 poll had pegged the figure at 7%.

GAIL's Business Segment

GAIL's natural gas marketing business reported an EBIT loss of ₹151 crore, compared to a positive EBIT of ₹853 crore in the previous quarter.

The company's natural gas transmission business saw an EBIT of ₹1,881 crore compared to ₹1,376 crore in the previous quarter.

Additionally, losses for the petchem business stood at ₹377 crore, narrower than the ₹472 crore loss it reported in the December quarter.

CLSA Remains Optimistic

CLSA has maintained its "outperform" rating on GAIL with a price target of ₹184 apiece, implying an upside of 18.1% from its previous closing price.

It said the fourth quarter EBITDA and EBIT stood at a notable 36% and 85% above the brokerage's estimates, driven by big beats for the company's gas transmission and gas trading (adjusted for a one-off provision) businesses.

CLSA said the gas transmission EBIT was 27% ahead of its estimates on a 2% volume beat and a better-than-modelled blended tariff and lower opex.

LPG production business' EBIT was 100% above CLSA's estimated, while the petchem loss was worse. Higher other income and a lower tax rate amplified the profit after tax (PAT) beat, it added.

GAIL shares were trading 1.9% lower at ₹152.94 apiece at 9.20 am on Friday. The stock has declined 7.9% in the past month.

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