GAIL surprises with 31% jump in profits on lower subsidies

Net sales zoom 28% to Rs 15,981 cr

State-owned GAIL India Ltd today surprised the street with better-than-expected net profit and revenues during the third quarter ending December 2013. The natural gas and petrochem major reported a 30.7 per cent year-on-year rise in net profit to Rs 1,679.4 crore for the third quarter while net sales zoomed 28.1 per cent to Rs 15,980.6 crore during the period.

In comparison, the street expected 20.8 per cent increase in net sales and a marginal one per cent fall in net profit based on the consensus estimates of seven brokerages. The result was announced during the market hours and stock reacted positively to the news. The stocks ended in green with a gain of 0.35 per cent against being in the red during most of the day. Sensex was down 36 points by the close of trading today.

Gail profits during the quarter was boosted by gains from sell of its shares in China Gas and the government decision to put a cap on its fuel subsidy burden at Rs 1,400 crore, which was already paid for by the company in the first half of the financial year. There are also talks about keeping GAIL out of subsidy burden.

During the quarter, GAIL sold about 60 million shares out of the total 210 million shares it holds in China Gas. “The net realisation due to sale was Rs 340 crore. We bought those shares at around $1.5 and sold it at $8.2 per share. We still hold 3 per cent stake in China Gas. Due to this deal, the profit after tax would have increased by 9 per cent,” GAIL chairman and managing director B C Tripathi told the media.   

Gail revenues from natural gas sales, its largest division jumped by 31 per cent during the quarter to Rs 13286.7 crore while segment profits before interest and taxes (PBIT) jumped 70 per cent to Rs 505.4 crore. This was despite the company reporting a decline in natural gas sales and transmission throughput through its pipeline network during the quarter.

A reduction in subsidy on cooking fuels led to 51 per increase in revenues from LPG and liquid hydrocarbons to Rs 1933 crore in the quarter. The division segment net profit was up 28 per cent on year-on-year basis to 762.4 crore in the third quarter. Its unregulated business of petrochemical remained subdued with flat revenues and 23.6 per cent year-on-year decline in segment profit before interest and taxes to Rs 335.6 crore in the third quarter.   

The biggest concern for the company remains poor pipeline utilization. “The utilization of Dhabol and Dahej pipeline projects are below 10 per cent, while our average pipeline utilization is at 45 per cent,” he added.  It handled eight loads of cargoes in December and expects to carry another seven during the fourth quarter, taking the total to 26 shiploads for the fiscal. “We are looking to import 32 to 33 cargoes of LNG for the coming financial year, depending on demand,” he added.   

“High prices had affected our demand and our Dhabol terminal is having a capacity utilization of only 1 million tonne per annum against an expected 3.5 MTPA capacity.”

This coupled with policy uncertainty on cooking fuel subsidy is likely to keep the stock in a range bound movement.