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  • Jan 19, 2011 - GAIL India: Higher gas transmission volumes boost top line

GAIL India: Higher gas transmission volumes boost top line
Jan 19, 2011

Gas transmission and trading major, GAIL India has announced its 3QFY11 results. The company has reported 35% YoY growth in top line and 13% YoY growth in bottomline. Here is our analysis of the results.

Performance summary
  • Top line soared 35.1% YoY during the quarter. For the 9 month period, revenues grew by 27.5% YoY.
  • While operating profits grew 3.5% YoY during the current quarter, operating margins declined by 4.8% YoY, from 20.7% last year to 15.9%. For the 9 month period, the margins declined marginally by 0.5 % YoY.
  • Net profits were up 12.5% YoY for the quarter, however, the margins declined by 2.3%. For the 9 month period, the margins have remained stable.


(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Sales 62,057 83,836 35.1% 185,342 236,276 27.5%
Expenditure 49,182 70,505 43.4% 151,219 193,829 28.2%
Operating profit (EBDITA) 12,875 13,331 3.5% 34,124 42,447 24.4%
EBDITA margin (%) 20.7% 15.9%   18.4% 18.0%  
Other income 1,259 1,906 51.4% 3,326 3,882 16.7%
Interest (net) 142 165 15.7% 500 487 -2.5%
Depreciation 1,409 1,605 13.9% 4,229 4,831 14.2%
Profit before tax 12,583 13,467 7.0% 32,720 41,011 25.3%
Pretax margin (%) 20.3% 16.1%   17.7% 17.4%  
Extraordinary income/(expense) - - - - - -
Tax 3,983 3,791 -4.8% 10,430 13,231 26.9%
Profit after tax/(loss) 8,600 9,676 12.5% 22,290 27,781 24.6%
Net profit margin (%) 13.9% 11.5%   12.0% 11.8%  
No. of shares (m) 1,269 1,269   1,269 1,269  
Diluted earnings per share (Rs)*         29.1  
Price to earnings ratio (x)**         16.4  
(* Based on trailing twelve months earnings)

What has driven performance in 3QFY11?
  • Top line growth of 35.1% YoY for the quarter was mainly driven by natural gas trading business (73% of the total revenues) that grew by 49.6% YoY. Among the other business segments, natural gas transmission and LPG transmission grew 17.4% YoY and 11.4% YoY respectively. However, LPG hydrocarbons showed a lack luster growth of 2.3 % YoY during the quarter. The petrochemicals segment registered a decline of 30% YoY during the quarter. Its share in the total revenues plummeted from 12% last year to just 6% this quarter.

  • With regards to physical performance, sales of natural gas grew by 3% YoY, natural gas transmission grew by 10% YoY, and LPG transmission was up by 9% YoY. However, production of petrochemicals declined by 6% YoY during the quarter.

    Segmental break up...
    (Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
    Natural Gas transmission            
    Revenues 8,528 10,008 17.4% 24,289 28,771 18.5%
    PBIT 5,954 6,657 11.8% 17,333 20,269 16.9%
    PBIT margins 69.8% 66.5%   71.4% 70.4%  
    LPG transmission            
    Revenues 1,161 1,292 11.4% 3,247 3,569 9.9%
    PBIT 639 844 32.2% 1,910 2,365 23.8%
    PBIT margins 55.0% 65.3%   58.8% 66.3%  
    Natural gas trading            
    Revenues 45,274 67,728 49.6% 141,383 185,139 30.9%
    PBIT 1,179 2,059 74.6% 3,347 5,240 56.6%
    PBIT margins 2.6% 3.0%   2.4% 2.8%  
    Petrochemicals            
    Revenues 8,150 5,713 -29.9% 20,899 19,298 -7.7%
    PBIT 3,413 1,954 -42.7% 8,810 7,516 -14.7%
    PBIT margins 41.9% 34.2%   42.2% 38.9%  
    LPG Liquid hydrocarbons            
    Revenues 7,119 7,283 2.3% 19,131 22,465 17.4%
    PBIT 1,252 1,501 19.9% 2,021 5,586 176.4%
    PBIT margins 17.6% 20.6%   10.6% 24.9%  
    Others            
    Revenues 165 151 -8.6% 480 446 -7.1%
    PBIT -149 -167 12.2% -1631 -783 -52.0%
    PBIT margins N.A. N.A.   N.A. N.A.  

  • Operating profits registered a modest 3.5% YoY growth during the quarter. The expenses were high on account of a whopping 53% YoY increase in ‘Purchase of traded goods’ costs that contributed to 81% of the total operating expenses. On the positive side, the staff costs declined 37% YoY. Segment wise, barring petrochemicals that registered a 42.7% YoY decline, the remaining sectors registered a growth in the EBIT. The natural gas trading segment outperformed with a 74.6% YoY increase in EBIT. However, EBIT margins for gas transmission and Petrochemicals were down 3.3% YoY and 7.7% YoY respectively.

  • Net profit registered 12.5% YoY growth. This was mainly on account of the robust growth in revenues and higher other income, which witnessed a 51.4% YoY increase during the quarter. Lower tax rates during the quarter also aided the growth in net profits. However, the margins declined by 2.3% YoY due to increased operating expenses.

What to expect?
GAIL is planning to invest US$ 400-500m in US shale gas assets which we believe is excellent move to diversify its asset base, especially since Shale gas is going to be a game changer in the energy sector. It plans to invest Rs. 350 bn in next three to four years in laying new pipelines. Besides this, it has taken a joint initiative with ONGC for exclusive sale from its various fields during next three years. For this it has set up an arrangement to optimize the costs and market ONGC’s petrochemical products.

At the current price of Rs. 478, the stock is trading at 17.9 times our FY13 earnings per share (Research pro subscribers please click here. ) We believe that GAIL is quite proactive in its business approach. It has tapped the right opportunities and should continue to perform well. However, we feel that most of the positives are already priced in the stock and advise caution on the stock from a medium term perspective.

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