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GAIL: Bottomline down 29%
Jul 25, 2013

Gas Authority Of India Ltd. (GAIL)has announced the results for the first quarter of the financial year 2013-2014 (1QFY14). The company has reported 16.0% year on year (YoY) growth in the topline and 28.7% YoY decline in the bottomline for the year. Here is our analysis of the results.

Performance summary
  • The company registered 16.0% YoY growth in the topline during the quarter.
  • The operating profits for the quarter declined by 21.2% YoY with operating profit margins at 11.7%, as compared to 17.2% in the corresponding quarter last year.
  • The net income for the quarter registered 28.7% YoY decline, with margins at 6.3%, as compared to 10.2% in 1QFY13.
  • The company has provided a discount of Rs 7 bn during the quarter (same as in 1QFY13) to share under recoveries on LPG (Liquefied Petroleum Gas).

Standalone performance summary
(Rs m) 1QFY13 1QFY14 YoY ch. (%)
Sales 111,224 128,998 16.0%
Expenditure 92,089 113,915 23.7%
Operating profit (EBDITA) 19,135 15,084 -21.2%
EBDITA margin (%) 17.2% 11.7%  
Other income 468 577 23.2%
Interest (net) 587.8 612 4.1%
Depreciation 2,169 2,808 29.5%
Profit before tax 16,846 12,241 -27.3%
Pretax margin (%) 15.1% 9.5%  
Tax 5,508 4,159 -24.5%
Profit after tax/(loss) 11,338 8,082 -28.7%
Net profit margin 10.2% 6.3%  
No. of shares (m)   1,268  
Diluted earnings per share (Rs)*   33.2  
Price to earnings ratio (x)**   9.9  
*On trailing 12 months basis

What has driven performance in 1QFY14?
  • The net sales for the quarter grew by 16.0% mainly on account of high revenue growth in trading and petrochemical segment. The increase in revenue is mainly due to higher sale of spot LNG volume and increase in production and sale of Petrochemicals. However, revenues from LPG transmission and LPG /OLHC segment witnessed a decline. Polymer sales volumes for the quarter witnessed 83% YoY growth while LPG/OLHC sales volumes were up by 9% YoY. The sales in the natural gas transmission segment were up by 9% YoY while volumes declined 10.6% YoY. In the LPG transmission segment also, the volumes declined by 17% YoYas gas supplies from KGD6 basin dried. Due to poor volumes and lower realizations, the revenues in the LPG transmission segment declined by 17% YoY .
    Segmental Summary
    Rs m 1QFY13 1QFY14 YoY ch. (%)
    Natural Gas transmission
    Sales 9,152 9,994 9.2%
    PBIT 5,673 5538.3 -2.4%
    PBIT margins 62.0% 55.4%  
    LPG Transmission
    Sales 1,136 939 -17.3%
    PBIT 709.4 550.3 -22.4%
    PBIT margins 62.4% 58.6%  
    Gas Trading
    Sales 92,421 110,585 19.7%
    PBIT 4,956 3,025 -39.0%
    PBIT  margins 5.4% 2.7%  
    Petrochemicals
    Sales 5,741 11,033 92.2%
    PBIT 1,958 4,383 123.8%
    PBIT margins 34.1% 39.7%  
    LPG & Other Liquid Hydro Carbons
    Sales 10,723 10,037 -6.4%
    PBIT 4,373 -109 nm
    PBIT margins 40.8% -1.1%  
    Other segment
    Sales 560 576 2.7%
    PBIT -9.3 -254.7 nm
    PBIT  margins -1.7% -44.2%  

  • The overall operating profits for the quarter declined by 21.2% while margins slipped to 11.7% from 17.2% in 1QFY13. Barring Petrochemicals where operating profits grew 124% YoY, all segments witnessed a decline as compared to the corresponding period in the last year. The losses were pronounced in the LPG segment due to lower volumes and lower realizations. While the gas trading segment posted 39% YoY decline in the operating profits, the LPG/OLHC segment posted losses. While access to cheap domestic gas declined drastically, GAIL's contribution to share losses on LPG remain unchanged (Rs 7 bn). The margins in the transmission segment also declined due to lower utilization of transmission capacity.

  • The net profits for the quarter declined by 29% on account of dismal performance across most of the segments and subsidy outgo of Rs 7 bn in the LPG segment.

Cost breakup
(Rs m) 1QFY13 1QFY14 YoY ch. (%)
Raw materials 83,198 103,189 24.0%
% of sales 74.8% 80.0%  
Staff costs 1739.8 2,004 15.2%
% of sales 1.6% 1.6%  
Other expenses 7,151 8,722 22.0%
% of sales 6.4% 6.8%  
Total expenses 92,089 113,915 23.7%
% of sales 82.8% 88.3%  

What to expect?

At the current prices of Rs 319, the stock is trading at 9.6 times its trailing 12 months earnings per share. While GAIL is a strong long term player, the prospects in the short to medium term look muted due to shortage in the gas supplies and regulatory issues. A hike in the gas prices is likely to be negative for the company as its uses natural gas as raw material for Petrochemical segment. We recommend that investors do not buy the stock at current levels.

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