Higher volume, profitability gains for GAIL India

GAIL India’s second quarter (Q2FY25) performance met expectations.

Petchem turned profitable on higher volumes, and trading revenues were in-line.

Analysts are pointing at some favourable factors for FY26 and FY27.

There could be a transmission tariff hike in Q4FY25, steady growth in transmission and marketing volumes, and petchem capacity rising by
two times in FY27.

GAIL India expects 5 million standard cubic meters per day (mscmd) per annum growth in marketing volumes for next two years.

Trading segment profit guidance of Rs 4,500 crore may be exceeded.

The management expects petchem segments Q2 operating profit run-rate to continue in H2FY25.

The capex in H2FY25 may be higher, with FY25 capex going to Rs 9,000-10,000 crore (earlier guidance was of Rs 11,450 crore).

The state-owned energy giant plans to add 80 new compressed natural gas (CNG) stations and 120,000 new domestic piped natural gas (PNG) connections in next two years, and 500 kilo tonnes per annum (ktpa) PDH-PP (propane-based plant) at Usar will start commercial production by October 2025, and a 60 ktpa polypropylene plant at Pata will be commissioned by December 24.

The Q2FY25 operating profit was up 7 per cent Y-o-Y at Rs 3,740 crore, net profit rose 11 per cent Y-o-Y to Rs 2,670 crore due to higher other income (including dividends of Rs 360 crore).

Natural gas transmission volume stood at 130.6 mscmd (131.8 ms­cmd in 1QFY25).

Petchem sales rose 34 per cent Q-o-Q and 35 per cent Y-o-Y to 226,000 mt.

Operating profit for petchem segment was Rs 170 crore.

The costs of gas sourcing for petchem stood at $8/$9 per mmbtu in Q1 and Q2, respectively.

In Q2FY25, GAIL India incurred a capex of Rs 1,890 crore (Rs 3,540 crore capex in H1FY25), primarily on pipelines and petroch­emicals.

In H1FY25, GAIL India’s net sales grew 4 per cent to Rs 66,590 crore.

Operating profit rose 36 per cent to Rs 8,270 crore, and net profit grew 35 per cent to Rs 5,400 crore.

Sales and net profit may rise moderately in H2FY25, but operating profit could decline or be flat.

Segment-wise, gas transmission had an oper­ating level profit of Rs 1,400 crore in Q2 (up 9 per cent Y-o-Y), LPG transmission’s profit stood at Rs 855 crore, marketing business posted a profit of Rs 1,330 crore (down 26 per cent Y-o-Y).

Petchem segment recorded a profit of Rs 160 crore (vs operating loss of Rs 160 crore Y-o-Y).

LPG and hydrocarbon segments reported an operating profit of Rs 250 crore (vs operating loss of Rs 16.7 crore Y-o-Y).

During FY24-27, there could be mid-teens growth in net profit, driven by natural gas transmission volumes rising to 149 mscmd in
FY27 from 120 mscmd in FY24, and higher petchem profitability as more capacity comes online.

GAIL India’s return on equity should improve to 16 per cent in FY26 from 9.5 per cent in FY23, with free cash flow or FCF generation of Rs 7,300 crore in FY26 (vs neg­ative Rs 4,530 crore FCF in FY23).

Gas marketing volumes were affected by lower demand from the power sector.

Management points out that 73 per cent of FY25 profit guidance of Rs 4,500 crore has already been achieved and guidance may be exceeded.

Transmission tariff hike is estimated to be approved by March 2025.

Gail hopes to list a couple of joint ventures this financial year or next.

The Mumbai-Nagpur-Jharsuguda pipeline (1,755km) will be completed in June 2025 (3 months delay) while Jagdishpur-Haldia-Bokaro-Dhamra pipeline will be completed in March 2025.

The Kochi-Mangalore-Bangalore Pipeline will be completed in March 2025 while Srikakulam-Angul main pipeline will be completed in Jun 2025.

The 500ktpa capacity PDH-PP at Usar will start commercial production by October 2025 and the 1250ktpa GAIL India Mangalore petro­chemical plant (acquired from JBF Indu­stries) will be completed by Jun 2025 at a project cost of Rs 4,200 crore.

No profits are expected from these in FY26.

Any sum of the parts analysis must include the gas transmission business, LPG transmission business, gas trading business, petro­chemical business and LPG business, plus the value of listed and unlisted investments.

The market is positive on the stock.

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