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GAIL: Impressive performance - Views on News from Equitymaster
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  • May 2, 2003

    GAIL: Impressive performance

    Gas transmission and distribution major, Gas authority of India Ltd. (GAIL) has posted the fourth quarter and full FY03 results which showed an impressive 10% growth in topline while its bottomline i.e. Net Profit increased by an even better 35% as compared to FY02.

    (Rs m) 4QFY02 4QFY03 Change FY02 FY03 Change
    Sales 26,103 29,559 13.2% 103,090 113,464 10.1%
    Other Income 692 1,236 78.5% 2,096 3,176 51.5%
    Expenditure 19,814 20,890 5.4% 78,824 83,169 5.5%
    Operating Profit (EBDIT) 6,289 8,669 37.9% 24,266 30,295 24.8%
    Operating Profit Margin (%) 24.1% 29.3%   23.5% 26.7%  
    Interest 525 374 -28.8% 2,269 1,864 -17.9%
    Depreciation 1,686 1,458 -13.5% 6,074 6,424 5.8%
    Profit before Tax 4,771 8,074 69.2% 18,019 25,184 39.8%
    Tax 1,411 2,764 95.9% 6,161 9,114 47.9%
    Profit after Tax/(Loss) 3,360 5,310 58.0% 11,858 16,070 35.5%
    Net profit margin (%) 12.9% 18.0%   11.5% 14.2%  
    No. of Shares 845.7 845.7   845.7 845.7  
    Diluted Earnings per share* 15.9 25.1   14.0 19.0  
    P/E Ratio   3.2     4.3  

    Topline growth recorded in FY03 can be largely attributed to the increase in volumes of gas handled from the Krishna Godavari basin, increase in polymers and LPG sales and that from other liquid hydrocarbons. Gas throughput during FY03 increased by about 2%, whereas the total liquid hydrocarbon production increased by about 16% in FY03. If we look at the segment wise breakup of sales and revenue mix for the company, it becomes aptly clear that the sales primarily comes from Gas processing and LPG transportation. While the former constitutes for about 98% on the sales side, latter contributes about the remaining 2%. On the profit side, gas processing business generates a profit of about 97% for the company. The PBIT margin from LPG transmission has increased from 21% last year to 34% in this financial year.

    Segment wise break-up
      FY02 FY03
      Sales PBIT Margin Sales PBIT Margin
    Gas processing & sales 98.1% 19.9% 98.1% 24.3%
    LPG Transportation 1.9% 0.4% 1.9% 0.7%
    Others 0.0% 0.0% 0.0% 0.0%
    Total 100% 20.3% 100% 25.0%

    While on one hand sales have grown strongly, on the other hand the company has managed to keep its expenses under control. Expenditure has increased by about 5% for FY03. Contribution of purchases of Natural Gas as a percent of total sales has gone down from about 61% to 57% in FY03. This has led to the considerable improvement in the operating margins. The company's operating margin has improved by 310 basis points in FY03.

    Apart from the improvement in operating margins, profitability has improved considerably due to fall in interest expenses by about 18% in FY03. The company seems to have carried out debt restructuring due to the current prevailing low interest rates. This has led to a considerable growth in net profits for FY03. The company's net profit growth stood at 35% in the year ended FY03.

    At Rs 81 the scrip is trading at a P/E multiple of 4.3x its FY03 earnings. Going forward the company has projects worth Rs. 70 bn underway and has an investment plan to the tune of Rs 200 bn in the next five years. Considering the company's expansion plans and its performance in FY03, we feel that more value can be unlocked from the business going forward.



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