Gas transmission major GAIL’s September quarter profit declined around 10 per cent over the same period last year. This was mainly due to the sharp fall in profit in the trading and LPG transmission businesses, and higher subsidy burden.
These more than offset the good show of the natural gas transmission and petrochemicals segments, which grew profits despite fall in volumes. Operating margins fell more than 400 basis points over the same period last year to around 12 per cent.
Trading disappoints
The trading businesses which salvaged GAIL’s results in the June quarter slipped badly in the September quarter.
Compared to the same period last year, the gas trading segment’s profit fell around 15 per cent, while the LPG trading segment’s profit fell more than 80 per cent. This was much higher than the low single-digit dip in volumes in these segments, suggesting that the company had to take sharp price cuts.
Also, though LPG transmission volumes grew marginally, the segment posted an operational loss of around Rs 49 crore. This followed the downstream regulator derecognising revenue of Rs 123 crore during the quarter due to revision of LPG pipeline tariff.
Had this adjustment not been there, GAIL’s profit would remained flat. The company’s higher contribution towards subsidy (up almost 39 per cent to Rs 786 crore) also did not help.
The surprise
What surprised positively was the nine per cent year-on-year profit growth in the company’s mainstay business - natural gas transmission. This was despite a fall in transmission volumes from 118.62 mscmd in the September 2011 quarter to 105.62 mscmd.
This suggests strong pricing power in the segment – also reflected in the operating margins which rose 470 basis points to 61.4 per cent. This script of better profits despite sharply lower volumes was also seen in the petrochemicals segment.
The continuous fall in gas transmission volumes due to the dip in domestic gas availability and the consequent capacity underutilisation remain a concern.
Meanwhile, the company’s depreciation and interest cost rose – a result of the increased capital spend on new pipelines which await gas supplies.
In this context, GAIL’s plan to commission the Dabhol LNG terminal early next year bodes well. This could be why the stock rose almost one per cent in Friday’s trade despite the lacklustre quarter.
The company’s debt at around Rs 6,640 crore has doubled since last September. Debt-to-equity though remains reasonable at 0.28 times.