GAIL (India) Ltd’s profit in the September quarter fell nearly 7 per cent compared with the same period last year.
This was due to sales volume declining in most segments and lower margins in key segments such as gas transmission and petrochemicals. In particular, the company’s mainstay gas transmission business continued to suffer due to falling domestic supply.
With imports also weak in the quarter due to high prices of spot cargoes, GAIL transmitted nearly 10 per cent less gas and the segment’s profit fell around 5 per cent.
In the gas trading segment, despite sales volume falling 2.6 per cent, profit nearly doubled from a year ago, aided by high spot gas prices. In contrast, the petrochemicals segment, the other major profit contributor, saw profit fall despite sales volume growing.
This suggests weak pricing power and comes as a surprise given the strong show by the petrochemicals segment of Reliance Industries in the quarter. Meanwhile, with the company expanding its pipeline network, higher interest cost (up almost three-fold) also weighed on profit.
The company’s debt has increased from around Rs 6,600 crore a year ago to nearly Rs 9,800 crore.
Over the past two months, the GAIL stock has rallied over 16 per cent. Reports that the Government may exempt the company from the subsidy burden have helped.
With the management stating on Thursday that GAIL’s subsidy burden for FY-14 has been frozen at Rs 1,400 crore (an amount already shouldered by it in the first half ended September 30), the state-run company’s financial performance should receive a boost in the coming quarters. This should aid the stock.
But for the stock to sustain performance in the long term, improved gas supplies which will alleviate concerns on under-utilisation of the expanded pipeline network will be the key.
A quick resolution of the dispute with the Tamil Nadu government, which is impeding the Kochi-Bangalore pipeline will, also help.
anand.k@thehindu.co.in