X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
GAIL: A disappointing performance - Views on News from Equitymaster
StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

GAIL: A disappointing performance
May 26, 2014 | Updated on Jun 12, 2014

GAIL (India) Ltd has announced the results for the financial year 2013-2014 (FY14). The company has reported 21.0% year on year (YoY) growth in the topline and 8.8% YoY growth in the bottomline for the year. Here is our analysis of the results.

Performance summary
  • The company registered 16.8% YoY growth in the topline during the quarter. For FY14, the revenues were up 21.0% YoY.
  • The operating profits for the quarter grew by 20.1 % YoY with operating profit margins at 9.9%, as compared to 9.6% in the corresponding quarter last year. For FY14, the operating profits were up 3.6% YoY, with operating profit margins at 11.7% versus 13.6% in FY13.
  • The net income for the quarter registered 57.2% YoY growth, with margins at 6.7%, as compared to 5.0% in 4QFY13. For FY14, the net profits were up 8.8% YoY, with margins at 7.6% versus 8.5% in FY13. Excluding exceptional item, the growth in the bottomline remained flat in FY14.
  • The company has provided a provisional discount of around Rs 5 bn during the quarter, as compared to discount of Rs 5.7 bn in the corresponding quarter last year for share under recoveries on LPG (Liquefied Petroleum Gas). For FY14, the discount stood at around Rs 19 bn, as compared to a discount of Rs 27 bn in FY13.
  • The company has announced a final dividend of Rs 5.9 per share, subject to approval by shareholders. This is apart from an interim dividend of Rs 4.5 per share that has already been paid. The total dividend yield for the year stands at Rs 10.4 per share that implies a dividend yield of 2.4%

Financial snapshot
(Rs m) 4QFY13 4QFY14 YoY ch.(%) FY13 FY14 YoY ch. (%)
Sales 124,707 145,672 16.8% 475,227 575,079 21.0%
Expenditure 112,719 131,273 16.5% 410,535 508,067 23.8%
Operating profit (EBDITA) 11,988 14,399 20.1% 64,692 67,012 3.6%
EBDITA margin (%) 9.6% 9.9%   13.6% 11.7%  
Other income 2,696 4,107 52.3% 7,645 8,985 17.5%
Interest (net) 549 1,056 92.2% 1950.2 3,662 87.8%
Depreciation 2,726 3,057 12.2% 9,809 11,762 19.9%
Profit before tax 11,409 14,393 26.2% 60,578 60,574 0.0%
Pretax margin (%) 9.1% 9.9%   12.7% 10.5%  
Exceptional items         3,450  
Reported Profit before tax 11,409 14,393 26.2% 60,578 64,023 5.7%
Reported Pretax margin (%) 9.1% 9.9%   12.7% 11.1%  
Tax 5,227 4,673 -10.6% 20,356 20,271 -0.4%
Profit after tax/(loss) 6,182 9,720 57.2% 40,222 43,753 8.8%
Net profit margin 5.0% 6.7%   8.5% 7.6%  
No. of shares (m)         1,268  
Diluted earnings per share (Rs)*         34.5  
Price to earnings ratio (x)**         11.9  
* On a trailing 12 months basis

What has driven performance during the quarter?
  • The company registered 16.8% YoY growth during the quarter. This was mainly driven by YoY growth in the natural gas, LPG transmission segment, natural gas trading and LPG and Hydrocarbon segment. On a sequential basis, the volumes and realizations across the main segments declined for the quarter.

    Segmental summary
    (Rs m) 4QFY13 4QFY14 YoY ch.(%) FY13 FY14 YoY ch. (%)
    Natural Gas transmission
    Sales 4,581 8,491 85.3% 33,473 41,042 22.6%
    PBIT 406 2,604 541.9% 18,323 18,016 -1.7%
    PBIT margins 8.9% 30.7% 21.8% 54.7% 43.9% -10.8%
    LPG Transmission
    Sales 1,035 1,149 11.0% 2,939 4,181 42.2%
    PBIT 620 579 -6.6%      973          2,153 121.2%
    PBIT margins 59.9% 50.4%   33.1% 51.5% 18.4%
    Gas Trading
    Sales 105,523 121,980 15.6% 396,094 489,217 23.5%
    PBIT 3,469 2,854 -17.7% 13,858 15,803 14.0%
    PBIT  margins 3.3% 2.3%   3.5% 3.2% -0.3%
    Petrochemicals
    Sales 12,039 11,802 -2.0% 37,649 45,817 21.7%
    PBIT 4,716 1,965 -58.3% 15,250 13,612 -10.7%
    PBIT margins 39.2% 16.6%   40.5% 29.7% -10.8%
    LPG & Other Liquid Hydro Carbons
    Sales 13,147 14,858 13.0% 44,337 54,619 23.2%
    PBIT 4,927 4,979 1.1% 15,885 10,214 -35.7%
    PBIT margins 37.5% 33.5%   35.8% 18.7% -17.1%
    Other segment
    Sales 423 1,457 244.8% 2,175 3,926 80.4%
    PBIT -338 -2.5 nm (1,022) 52 -105.1%
    PBIT  margins -80.0% -0.2% nm -47.0% 1.3% nm

  • Segmentwise, on a sequential basis, transmission tariff and natural gas transmission volumes declined for the quarter. The tariffs were down due to provisions on take or pay contracts. For Petchem segment also, the profitability took a hit, on a sequential and annual basis, because of the high gas cost due to use of costlier RLNG. In the LPG and other liquid hydrocarbon segment, the company had to bear a subsidy burden of Rs 5 bn. In the gas trading segment also, the profits for the quarer declined. The trading volumes declined sequentially (and annually ) during the quarter and trading margins were also lower. This could be attributed to lower off take from power and fertilizer segment as share of costlier imported gas went up. Overall, the operating profit margin for the quarter stood at 9.9%, up from 9.6% in the corresponding quarter last year. This was due to sharp decline in other expenses during the quarter.

    Cost breakup
    (Rs m) 4QFY13 4QFY14 YoY ch.(%) FY13 FY14 YoY ch. (%)
    Raw materials 95,074 116,994 23.1% 363,086 454,510 25.2%
    % of sales 76.2% 80.3%   76.4% 79.0%  
    Staff costs 2,371 2,258 -4.7% 7,855 8,477 7.9%
    % of sales 1.9% 1.6%   1.7% 1.5%  
    Other expenses 15,276 12,021 -21.3% 39,594 45,080 13.9%
    % of sales 12.2% 8.3%   8.3% 7.8%  
    Total expenses 112,720 131,273 16.5% 410,535 508,067 23.8%
    % of sales 90.4% 90.1%   86.4% 88.3%  

  • The net profits for the quarter grew 57% YoY on the back of lower tax outgo and 52% YoY gain in the other income. GAIL has borne a subsidy of Rs 5 bn during the quarter for share of losses on LPG sales.
What to expect?
The transmission segment disappointed during the quarter due to low volumes and tariffs. Domestic gas supply scenario still does not offer much comfort and has led to low capacity utilization for the pipelines. The company is now shifting focusing to city gas distribution.

GAIL plans to import LNG in order to meet the shortage in the domestic gas supplies. It has signed long term LNG supply contracts for the same.

As far as Petchem segment is concerned, while GAIL is planning an expansion in the segment, high gas cost weigh on the profitability of Petrochem segment.

While the management seems confident that it will get rid of subsidies, increase in gas costs could offset the gains for GAIL.

The stock is currently trading at a trailing 12 months price to earnings ratio of 12.5 times and met our target price of Rs 410 some time back. While GAIL is a fundamentally strong company, the concerns on account of high gas prices, lower gas supplies and low capacity utilization of pipelines can not be ignored.

We will be updating the model and update subscribers with the revised target price soon. Until then, we recommend investors to 'Hold' the stock.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow suggested and that no single stock comprises 5% of your portfolio.

To Read the Full Story, Subscribe or Sign In


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

GAIL SHARE PRICE


Feb 19, 2018 03:37 PM

TRACK GAIL

GAIL - CHINA PETRO. COMPARISON

COMPARE GAIL WITH

MARKET STATS