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20 Jan 2011
Gail Q3 results

The company has reported 26% growth (YOY) in its top line and a 7% growth in its profit after tax. Earnings per shares for the quarter are Rs. 7.63 and for the trailing 12 months EPS stands at Rs. 29.08, which discounts the current market price of Rs. 450 about 15 times. The company’s share of subsidy burden for the quarter has been Rs 417 Cr. against Rs.455 Cr for the corresponding quarter of previous year. For the 9 month ended 31st Dec 2010 the company has contributed Rs. 1209 Cr. as its shares towards the under recoveries of the oil sector against Rs. 988 Cr. for the corresponding period of last year.   

The core business of natural gas transmission which contributes more than 50% of its operating profit has shown a 20% YOY growth in its top line and 12% growth in operating profits. The turnover from natural gas trading business at Rs. 6772 Cr. was up 33% (YOY) and profits from this division grew 75% at Rs 205 cr. LPG transmission business also reported a healthy profit growth of 31%. Profits from liquid hydro carbon segment were higher 20% YOY at Rs 150 cr.  The petrochemical division however reported a de growth of 28% in its top line and a 43% drop in operating profits.

The major growth driver for the company over next four years would be additional revenues from the highly profitable gas transmission business. The company plans to double its natural gas pipeline from 7000 kilometers in 2009-10 to 14000 km by FY 2013-14. Natural gas transmission capacity over the same period will also double from 150 (MMSCMD) to 300 (MMSCMD).  Incremental gas availability from RIL’s KG Basin, ONGC natural gas supply, gas from Rajasthan field and LNG imports by Petronet ltd would be the main sources of natural gas for the company.

The biggest drag on Gail’s stock price has been the lack of clarity on the subsidy sharing mechanism by the upstream / downstream companies in the oil sector. However with the impending ONGC public issue in mar 2011 the government is likely to announce a policy in this regard which will go a long way in improving Gail’s valuations.