GAIL (India) Ltd’s results for the March quarter were ahead of consensus estimates, thanks to a lower-than- expected provision for its subsidy share. The firm provided for Rs338 crore as its subsidy share for the March quarter, against an estimate of Rs670 crore by analysts at Motilal Oswal Securities Ltd. But its earnings before interest, tax, depreciation and amortization (Ebitda) of Rs1,320 crore was only Rs80 crore ahead of Motilal Oswal’s estimates. Some of the gains from the lower-than-expected subsidy provision were offset by higher survey expenses and write-offs on account of dry well expenditure.
The company’s segmental results were a mixed bag. The petrochemicals business did well, thanks to strong realizations. Ebitda of this division grew by 28% on a quarter-on-quarter basis. But this was offset by a drop in profit of the gas transmission business. This was despite a 5% sequential increase in volumes. According to a post-results report by Citigroup, this could possibly be because of a one-time provision taken by the company for the new provisional tariffs announced by the Petroleum and Natural Gas Regulatory Board. Even the profit from gas trading/marketing was lower than expected. While on the other hand, the profit of the liquefied petroleum gas and liquid hydrocarbons segment was higher than expected owing to relatively low subsidy provision.
Graphic: Yogesh Kumar/Mint
GAIL is the chief transporter of gas in the country and has benefited from the increased production of gas off the east coast. It is investing in new pipelines and upgrading some existing ones to cater to the increased supply. According to Citigroup, while tariffs on existing pipelines have been cut with retrospective effect, this will be more than offset as the new pipelines start contributing.
The company has also done much better than its public sector peers in the oil and gas space owing to its relatively low exposure to subsidies. The Kirit Parikh committee has even recommended that GAIL should be taken out of subsidy sharing. According to Motilal Oswal’s analysts, the lower-than-expected subsidy provision in the March quarter indicates that the government is trying to minimize the subsidy burden on GAIL. These factors have led to an outperformance in the company’s shares against the market in recent times.
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