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GAIL India: Impressive performance - Views on News from Equitymaster
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GAIL India: Impressive performance
Nov 3, 2010

GAIL India has announced its September quarter results. The company has reported a 30% growth in topline and a 30% growth in bottomline on a YoY basis. Here is our analysis of the results.

Performance summary
  • Topline grows by 30% YoY during the quarter, led by 27% growth in natural gas trading business.
  • Expansion in operating margins leads to a 40% growth in operating profits.
  • Net profits grow by 30% YoY on account of better operating performance, benign depreciation charges and lower interest expense. This was partially offset by higher tax charges
  • Half yearly bottomline grows 32% YoY on the back of a 24% growth in topline.

(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Net sales           62,455           81,282 30.1%      123,046      152,440 23.9%
Expenditure           52,060           66,712 28.1%      101,797      123,324 21.1%
Operating profit (EBDITA)           10,395           14,570 40.2%         21,249         29,116 37.0%
EBDITA margin (%) 16.6% 17.9%   17.3% 19.1%  
Other income             1,468             1,499 2.1%           2,067           1,976 -4.4%
Interest (net)                 179                 117 -34.2%              358              323 -9.8%
Depreciation             1,416             1,626 14.8%           2,820           3,226 14.4%
Profit before tax           10,268           14,326 39.5%         20,138         27,544 36.8%
Extraordinary income/(expense)                  -                    -        -      -    
Tax             3,135             5,090 62.4%           6,447           9,440 46.4%
Profit after tax/(loss)             7,132             9,236 29.5%         13,691         18,104 32.2%
Net profit margin (%) 11.4% 11.4%   11.1% 11.9%  
No. of shares (m)          1,268.5          1,268.5          1,268.5        1,268.5  
Diluted earnings per share (Rs)*                     28.2  
Price to earnings ratio (x)**         17.3  
(* on trailing twelve months earnings)

What has driven performance in 2QFY11?
  • Bulk of the company's revenues comes from the natural gas trading business, and with the same registering growth of around 27% YoY, total revenues have risen by 30% YoY. Other business segments like natural gas transmission, petrochemicals and LPG & liquid hydrocarbons have also done well, managing to grow their revenues by 16%, 13% and 43%, all on YoY basis respectively. The company has nearly 8,000 kms of pipelines carrying natural gas in the country. It will spend 400 billion rupees by FY15 to expand the same to 15,000 kms, thus giving a tremendous boost to both its volumes as well as revenues

    Segmental break-up...
    (Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
    Natural Gas transmission            
    Revenues 8,430 9,793 16.2% 15,761 18,762 19.0%
    PBIT 6,157 7,206 17.0% 11,379 13,612 19.6%
    PBIT margins 73.0% 73.6%   72.2% 72.5%  
    LPG transmission            
    Revenues 1,029 1,141 10.8% 2,087 2,276 9.1%
    PBIT     589     787 33.5% 1,272 1,520 19.6%
    PBIT margins 57.2% 69.0%   60.9% 66.8%  
    Natural gas trading            
    Revenues 49,691 62,894 26.6% 96,108 117,411 22.2%
    PBIT 1,105 1,602 45.0% 2,167 3,181 46.8%
    PBIT margins 2.2% 2.5%   2.3% 2.7%  
    Petrochemicals            
    Revenues 6,363 7,209 13.3% 12,749 13,585 6.6%
    PBIT 2,753 2,716 -1.4% 5,396 5,562 3.1%
    PBIT margins 43.3% 37.7%   42.3% 40.9%  
    LPG Liquid hydrocarbons            
    Revenues 5,156 7,367 42.9% 12,013 15,182 26.4%
    PBIT   (731) 1,752    769 4,085 431.3%
    PBIT margins -14.2% 23.8%   6.4% 26.9%  
    Others            
    Revenues     176     143 -18.7%  315  295 -6.3%
    PBIT   (302)   (479) 58.7% (1,482) (616) -58.4%
    PBIT margins N.A. N.A.   N.A. N.A.  

  • Company's operating profits have come in higher by 40% YoY, a better performance than the 30% growth in topline. While raw material costs moved perfectly in sync with topline growth, it was the fall in staff costs and other expenditure, both as a percentage of sales, that help boost operating margins. As far as segmental margins are concerned, barring petrochemicals, margins have come in higher for all of the other segments. A special mention needs to be made of the LPG and liquid hydrocarbons segment, where margins have gone from negative 14% to a positive 24%, a huge swing.

  • While PBT has moved more or less in line with operating profits, bottomline growth has come in slightly lower at around 30% YoY. This is mainly on account of 62% growth in tax expenses.

What to expect?
At the current price of Rs 494, the stock trades at around 19 times its estimated FY13 earnings per share (Rpro subscribers, please click here.) While the company has excellent growth prospects, we believe that growth in earnings from a medium term perspective is already priced into the stock and hence, we would advise caution at the current levels.

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