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GAIL: Trading business boosts performance
Jul 31, 2012

Gas Authority of India Ltd. (GAIL) has announced the first quarter results for financial year 2012-2013 (1QFY13). The company has reported 25.0% year on year (YoY) growth in top line and 15.1% YoY growth in the bottom-line for the quarter. Here is our analysis of the results.

Performance summary
  • The company registered a 25.0% YoY growth in the topline during the quarter.
  • The operating profits registered a growth of 21.9% YoY during the quarter, with margins at 17.3% versus 17.7% in 1QFY12 and 7.3% in 4QFY12.
  • The net income for the quarter registered 15.1% YoY growth, with margins at 10.2% versus 11.1% in 1QFY12 and 4.6% in 4QFY12.
  • During the quarter, the company has capitalized its Bawana-Nangal Pipeline at a value of Rs 13.8 bn.
  • The company has offered a discount of Rs 7 bn during the quarter to share under recoveries on LPG (Liquefied Petroleum Gas).

Standalone performance summary
(Rs m) 1QFY12 1QFY13 Change
Sales 88,890 111,120 25.0%
Expenditure 73,118 91,895 25.7%
Operating profit (EBDITA) 15,772 19,225 21.9%
EBDITA margin (%) 17.7% 17.3%  
Other income 647 378 -41.5%
Interest (net) 208 588 182.7%
Depreciation 1,782 2,169 21.7%
Profit before tax 14,429 16,846 16.7%
Pretax margin (%) 16.2% 15.2%  
Tax 4,582 5,508 20.2%
Profit after tax/(loss) 9,847 11,338 15.1%
Net profit margin 11.1% 10.2%  
No. of shares (m)   1,268  
Diluted earnings per share (Rs)*   30.0  
Price to earnings ratio (x)**   11.8  
*On a trailing 12 months basis

What happened in 1QFY13?
  • The growth in the net sales came at 25% YoY, up from 17.7% YoY in the previous quarter (4QFY12). Segment wise, Natural Gas trading (77% of the sales) and Liquid Hydrocarbons Segment (9% of sales) registered a 28.3% YoY and 31.8% YoY growth in revenues respectively. The sales volumes for the Natural Gas trading segment were up marginally (0.6% YoY) and sales volumes of Liquid Hydrocarbons were down 17% YoY. The Natural Gas Transmission segment, Petrochemicals and LPG transmission segment registered a 2.5% YoY, 9.9% YoY and 0.5% YoY decline in revenues. The Natural Gas transmission volumes declined by 6% YoY while LPG transmission volumes were up 3% YoY. The Petrochemicals segment also witnessed a sales volumes decline of 25% YoY.

  • The operating profits during the quarter registered 21.9% YoY growth, and margins stood at 17.3% as compared to 17.7% in 1QFY12 and 7.3% in 4QFY12. While the overall costs were up only marginally on a year on year basis, there was a considerable decline in the costs on a sequential basis. The costs of raw material declined to 74.9% (as a % of sales) from 79.8% in 4QFY12. The 'other expenses' also witnessed a significant reduction and stood at 6.4% (as a % of net sales) during the quarter as compared to 12.4% (of net sales) in 4QFY12. The Natural Gas trading Segment and Liquid Hydrocarbons registered an impressive growth of 58.3% YoY and 91.4% YoY respectively. However, EBIT for Petrochemicals division and Natural gas transmission was down by 19.5% YoY and 13.0% YoY respectively.

    Segmental performance
    (Rs m) 1QFY12 1QFY13 Change
    Natural Gas transmission
    Revenues 9,389 9,152 -2.5%
    PBIT 6,520 5,673 -13.0%
    PBIT margins 69.4% 62.0%  
    LPG transmission
    Revenues 1,142 1,136 -0.5%
    PBIT 689.7 709.4 2.9%
    PBIT margins 60.4% 62.4%  
    Natural gas trading
    Revenues 72,054 92,421 28.3%
    PBIT 3,131 4,956 58.3%
    PBIT margins 4.3% 5.4%  
    Petrochemicals
    Revenues 6,369 5,741 -9.9%
    PBIT 2,434 1,958 -19.5%
    PBIT margins 38.2% 34.1%  
    Liquid hydrocarbons
    Revenues 8,138 10,723 31.8%
    PBIT 2,285 4372.7 91.4%
    PBIT margins 28.1% 40.8%  
    Others
    Revenues 219.7 560.4 155.1%
    PBIT -335.1 80.9 -124.1%
    PBIT margins nm 14.4%  
    *Other Segment refers to the E&P and Power Generation.

  • The net income during the quarter was up 15.1% YoY with margins at 10.2% as compared to 11.1% in 1QFY12. The growth was mainly on account of strong topline performance. The depreciation expenses (as a % of sales) were same as in 1QFY12, however, interest expenses more than doubled (YoY basis) and 'other income' was down by 41.5% YoY. This is post the Rs 7,000 m towards LPG subsidy, up marginally by 2.6% YoY.

    Cost Breakup
    Rs m 1QFY12 1QFY13 Change
    Raw materials 65,137 83,198 27.7%
    % of Sales 73.3% 74.9%  
    Staff costs 1,716 1,636 -4.6%
    % of Sales 1.9% 1.5%  
    Other expenses 6,266 7,061 12.7%
    % of Sales 7.0% 6.4%  
    Total expenses 73,118 91,895 25.7%
    % of Sales 82.3% 82.7%  

What to expect?
The company's performance during the quarter looks good as compared to in the previous (4QFY12) when bottomline registered a 38% YoY decline. With regards to physical performance, barring LPG transmission and natural gas trading, the sales volumes of Petchem, LPG and Other liquid Hydrocarbons have declined on a YoY basis. Recently, the company's tariffs for Dadri Nangal Pipeline were slashed by 57% by the Gas Regulatory Board. Going forward, we expect the shortage in gas supplies to impact transmission volumes. At current stock price of Rs 356, the stock is trading at trailing 12 months PE of 12. While the company has a strong potential in the long term , from valuations perspective, we suggest our investors to 'Hold' the stock at current price levels .However, the stock offers a good buying opportunity if stock price gets corrected by around 10%.

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