Natural gas supplier GAIL (India) Ltd’s financial results for the quarter ended 31 December were below Street expectations, as is evident from the 1% drop in its shares on a day when the markets rose by 1.2%.
The disappointment came mainly from GAIL’s petrochemicals business and, to an extent, from its transmission business. The petrochemicals business was hit on account of a 23-day plant shutdown, which impacted sales volumes.
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Besides, processing costs were higher. Thankfully for the company, price realizations were broadly in line with expectations. The petrochemicals segment’s earnings before interest and tax declined by as much as 43% year-on-year (y-o-y), and 28% compared with the preceding quarter to Rs195 crore.
GAIL’s transmission business, too, seemed to have disappointed investors partly, thanks to lower tariffs in the segment. Transmission tariffs fell to Rs906 per million standard cu. m per day (mscmd) against Rs924 per mscmd in the September quarter. Transmission volumes increased by 3% sequentially to 120 mscmd.
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The weaker-than-expected performance from both the petrochemicals and transmission businesses hit GAIL’s operating profit margins, which declined by 475 basis points (bps) compared with December 2009 quarter and 200 bps sequentially to about 16%. One basis point is one-hundredth of a percentage point.
Other expense also rose, which according to the firm was partly because of expenses worth Rs32 crore due to survey expenses and write-off of dry well expenditure in exploration and production business.
Operating profit growth, therefore, was much slower at 3.5%, even though revenue grew by 35% y-o-y. Sequentially, operating profit slipped by 8.5%, while revenue grew by 3%.
However, the performance at the net profit level was much better, thanks to a 51% increase in other income to Rs191 crore and a decline in tax outgo. Net profit increased by 12.5% compared with the year-ago period to Rs968 crore.
The company is looking at expanding its transmission capacity by 1,500km this year. Over the next three-four years, GAIL intends to invest Rs35,000 crore, primarily for expansion of its transmission network.
Going ahead, commissioning of gas transmission lines would be one of the key triggers for the stock, which has outperformed the BSE-100 index of the Bombay Stock Exchange since the beginning of the fiscal. Meanwhile, the outlook for the petrochemicals business has improved in the recent past, and this should help the company’s shares as well.
Graphic by Naveen Kumar Saini/Mint
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