Most analysts had expected a lower subsidy payout for GAIL (India) Ltd for the quarter ended September than the 346 crore it has reported. Apart from that, the company’s numbers are more or less in line with Street estimates.

Total operating revenue increased by 30% year-on-year to 8,130 crore. This was driven by good growth from the natural gas trading business, and LPG (liquefied petroleum gas) and liquid hydrocarbons business. Analysts maintain higher transmission tariff of 924 per thousand cu. m (tcm) against 848 per tcm in the June quarter also helped revenue growth.

Also See High Flier (Graphic)

Operating profit margins improved by about 130 basis points from last year’s September quarter to 17.92%, but declined by 250 basis points compared with the June quarter. One basis point is one-hundredth of a percentage point. That’s because GAIL’s petrochemicals business performed poorly. Earnings before interest and tax margins of the petrochemicals business fell sharply by 700 basis points sequentially.

After Reliance Industries Ltd (RIL) delivered a better-than-expected performance in its petrochemical business last week, some investors were hoping that GAIL, too, would repeat the same feat. Clearly, GAIL has disappointed on that front. The outlook for the petrochemicals business is expected to be weak in the next two-three quarters due to a supply glut on account of new capacities in West Asia.

At the net level, GAIL has posted a 30% growth in profit to 924 crore helped by a decline in interest expenses and slower pace of growth in depreciation costs.

The company’s stock has outperformed the Bombay Stock Exchange’s (BSE) Sensex and the BSE Oil and Gas index since the beginning of the fiscal.

Analysts maintain the outperformance would have been higher if RIL was able to ramp up production from KG D6 earlier. But that is likely to take some time—RIL has indicated to analysts that production from KG D6 would increase to 80 million standard cu. m per day only in the March 2012 quarter.

The silver lining, as analysts from Anand Rathi Financial Services Ltd wrote, is that “even though delay in RIL’s gas production ramp-up is likely to curb GAIL’s FY11 volume growth, rise in imports of spot LNG cargoes would offset the loss to an extent".

Graphic by Yogesh Kumar/Mint

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