GAIL (India) Ltd missed Street expectations in the March quarter (Q4), with its Ebitda (earnings before interest, tax, depreciation and amortization) of Rs1,695 crore falling short. This was primarily owing to disappointing numbers from the petrochemicals business and weaker performance of the gas trading segment.

Sure, petrochemicals volumes increased year-on-year and sequentially as well. However, realizations were lower compared to last year’s March quarter and there were input costs pressures too. In fact, the gas trading business was also adversely affected due to higher input costs, leading to shrinking of margins.

The company’s natural gas transmission volume declined sequentially to 106 million standard cubic metres per day (mscmd) from 109 mscmd in the December quarter. Antique Stock Broking Ltd pointed out in a note to clients that volumes were negatively impacted by lower offtake from the power sector and a drop in domestic production (-3.5mscmd quarter-on-quarter), which got partially offset by higher liquefied natural gas (LNG) imports.

In comparison, liquefied petroleum gas and liquid hydrocarbons delivered a satisfactory performance.

Overall, pre-exceptional items and tax earnings declined 4.7% year-on-year to Rs1,577 crore. A sharp decline in other income also adversely affected net profit performance to that extent.

GAIL (India)’s shares fell 5% on 24 May in reaction to the numbers, although they have recovered since. Valuations seem inexpensive at about 14 times estimated earnings for this fiscal year.

What’s more, there are a few encouraging factors from a medium-term perspective. Higher crude oil prices are expected to offer some relief for the company’s US LNG contracts. Soft Henry Hub gas prices, higher Asian LNG prices and benign shipping costs imply, though, that these contracts are now profitable and remain so above $60 a barrel (Brent Crude prices), pointed out analysts from Jefferies India Pvt. Ltd in a report on 25 May.

“The revenue drivers for GAIL are on a growth trajectory with transmission/ trading volume set to stay firm over coming quarters," said Antique Stock Broking. Petrochemical earnings too should improve, as utilization improves at Pata-2 (petchem expansion in Uttar Pradesh).

Considering valuations aren’t demanding and outlook on many segments is sanguine, if investors are patient, the wait might just bear some good fruit.

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