Gail reported a weak set of numbers for 2QFY2016 with the 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 for the
quarter, at Rs14,165cr, is in line with our estimate of Rs14,271cr. 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.
The EBITDA declined 58% yoy to Rs844cr and is 17% below our estimate of
Rs1,022cr. 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 the new
facilities at Pata. Other income increased, led by dividend income of Rs163cr. The
Net profit declined 66% yoy to Rs441cr, 18% below our estimate of Rs536cr.
Outlook and valuation
We expect petchem volumes to drive revenues going forward. However, with
crude prices 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

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