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GAIL: Marching ahead - Views on News from Equitymaster
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  • Feb 5, 2002

    GAIL: Marching ahead

    The gas transmission & distribution major, Gas Authority of India Ltd. (Gail), has once again posted an impressive topline growth considering the slowdown in the industry. In fact, the company has reversed a slowdown in sales growth experienced in the second quarter.

    (Rs m) 3QFY01 3QFY02 Change 9mFY01 9mFY02 Change
    Net Sales 24,992 26,809 7.3% 74,808 78,891 5.5%
    Other Income 296 724 144.8% 875 1,404 60.4%
    Expenditure 19,831 20,814 5.0% 59,275 60,914 2.8%
    Operating Profit (EBDIT) 5,161 5,995 16.1% 15,533 17,977 15.7%
    Operating Profit Margin (%) 20.7% 22.4%   20.8% 22.8%  
    Interest 437 559 27.8% 1,333 1,744 30.8%
    Depreciation 1,255 1,392 10.9% 3,881 4,388 13.1%
    Profit before Tax 3,765 4,768 26.6% 11,195 13,248 18.3%
    Tax 1,330 1,705 28.2% 4,138 4,750 14.8%
    Profit after Tax/(Loss) 2,435 3,062 25.8% 7,057 8,498 20.4%
    Net profit margin (%) 9.7% 11.4%   9.4% 10.8%  
    No. of Shares 846 846   846 846  
    Diluted Earnings per share* 11.5 14.5   11.1 13.4  
    P/E Ratio   5.4     5.8  

    The growth in sales, as mentioned earlier could be due to the vast gap in gas demand-supply. Despite the slowdown, the drop in consumption is not likely to have altered the balance. Also, higher sales could have accrued from the newly commissioned LPG pipeline. The company, on the contrary, could face a supply risk, as ONGC is the primary supplier of gas to the company and with production declining, supplies could get tight. Also, as per reports, the company is witnessing a drying up of its Gandhar gas fields.

    Along with cooling in oil prices, international gas prices have also declined. Oil prices have come down from $26/ barrel to $20/ barrel in the past quarter. Consequently, gas purchase costs, which is the largest constituent of operating expenses, have remained subdued. The marginal rise in gas purchase costs is likely to be due to increased volumes. This has enabled the company to augment operating margins by 170 and 200 basis points for the quarter and nine months ended December '01.

    As part of the company's LPG foray, GAIL recently commissioned the world's longest and India's first fully dedicated LPG pipeline, which traverses a distance of 1,269 kms from Jamnagar, Gujarat to Loni, U.P. The pipeline has a capacity of 1.7 MMTPA, which is expected to be augmented to 2.5 MMTPA in phase-II. The project cost is estimated at Rs 12.5 bn. With commissioning of the project the interest and depreciation are likely to have been passed through the income statement, which has led to the higher fixed costs.

    Pre-tax profits to a certain extent have been lifted by higher other income. Adjusting for the same, pre-tax profits on nine month basis would have increased by 15%. Gail remains a full tax paying company. Effective tax rate for 9mFY02 is 36%.

    At Rs 78 the scrip is trading on a multiple of 5.8x 9mFY02 annualised earnings. The stock price has been strengthening over the past three months, as markets recognise the good performance of the company.



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