GAIL: Transmission volumes up again - Views on News from Equitymaster

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GAIL: Transmission volumes up again

Aug 4, 2010

GAIL has announced its 1QFY11 results. The company has reported a 17% YoY and 35% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline grows by 17.4% YoY during 1QFY11 on the back of a 25% YoY growth in the natural gas transmission business. Sales from the natural gas trading segment grow by 20% YoY, while that from the LPG & liquid hydrocarbons segments grow by 14% YoY.
  • EBITDA margin expands to 20.4% during the quarter from 17.9% in 1QFY10 on the back of lower raw material costs.
  • Other income records a decline of 20% YoY during the period.
  • Bottomline grows by 35% YoY during 1QFY11 due higher volumes and operating margins.

Standalone financial snapshot
(Rs m) 1QFY10 1QFY11 Change
Net sales 60,591 71,158 17.4%
Expenditure 49,737 56,612 13.8%
Operating profit (EBDITA) 10,854 14,546 34.0%
EBDITA margin (%) 17.9% 20.4%  
Other income 599 478 -20.3%
Interest 179 205 14.6%
Depreciation 1,404 1,600 13.9%
Profit before tax 9,870 13,218 33.9%
Tax 3,312 4,350 31.3%
Profit after tax/(loss) 6,558 8,869 35.2%
Net profit margin (%) 10.8% 12.5%  
No. of shares (m)   1,268.5  
Diluted earnings per share (Rs)*   26.6  
Price to earnings ratio (x)*   16.6  
* On trailing twelve months basis

Performance summary
  • GAIL recorded a topline growth of 17.4% YoY during 1QFY11 on the back of a 25% YoY growth in the natural gas transmission business. Sales from the petrochemicals segment grew by 0.2% YoY, while LPG and liquid hydrocarbons segment grew 14% YoY.

    Revenue break-up
    (Rs m) 1QFY10 % share 1QFY11 % share Change
    Natural Gas Trading 39,280 65% 47,150 66.4% 20.0%
    Natural Gas Transmission 6,690 11% 8,340 11.8% 24.7%
    Petrochemicals 6,360 11% 6,370 9.0% 0.2%
    LPG and Liquid Hydrocarbons 6,860 11% 7,810 11.0% 13.8%
    LPG Transmission 1,060 2% 1,140 1.6% 7.5%
    GAILTEL 40 0% 20 0.0% -50.0%
    Unallocated 100 0% 130 0.2% 30.0%

  • In terms of volumes, GAILís natural gas transmission volumes were 116 m standard cubic meters per day (mmscmd) in 1QFY11, an increase of 20% from 97 mmscmd in 1QFY10. LPG transmission during 1QFY11 was 788 thousand metric tonnes (TMT), up by 6% from 741 TMT in 1QFY10. The natural Gas sales during 1QFY11 were 85 mmscmd, up 6% from 80 mmscmd in 1QFY10. The LPG and other liquid hydrocarbon sales during the period were 356 TMT, up 7% from 334 TMT in 1QFY10. During 1QFY11, polymer sales were 88 TMT as against 92 TMT in 1QFY10.

  • The company posted a 35% YoY growth in bottomline during 1QFY11 mainly due to the volumes increase in natural gas transmission, natural gas trading and LPG & liquid hydrocarbons segments.

  • GAIL plans a capex of Rs 353 bn in FY13 mostly towards expanding its pipeline network . The company plans to add more than 7,000 km of pipelines to its existing network.

What to expect?
The stock currently trades at Rs 441, implying a multiple of 16.5 times our FY13 estimated consolidated earnings. The subsidy burden is a legacy of the political meddling in the Indian oil and gas sector. Although transmission tariffs have been revised upwards, there remains the risk of opposition due to the governmentís proposed allocation to non-remunerative users like the fertilisers industry. Additionally, the petrochemical segment is prone to cyclical upswings and downturns. However, the companyís in-place infrastructure as well as additional pipelines will help capture the increased transmission volumes of domestic natural gas, as and when they come on stream. Considering the factors for and against the company, we would advise against taking fresh positions in the stock at the current juncture.

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