In addition to the LPG business, increased K-G basin offtake leads to revenue growth.
A strong pick-up in economic activity and increased transmission helped GAIL post 9.09 per cent growth in revenues to Rs 2,4781.80 crore in FY10. Transmission revenues were aided by K-G basin offtake and LPG transmission revenues, which increased 27.63 per cent and 17.58 per cent, respectively. Overall, the year saw 28 per cent growth in gas transmission at 106.74 mmscmd and 23.97 per cent rise in operating profits, with overall operating margins increasing 242 basis points.
The transition from a mere gas transmission company to a diversified oil and gas company is steadily taking place. The petrochem business has shown good growth. It contributes about 11.5 per cent to overall revenues. However, LPG and liquid hydrocarbons segments, which contribute 10.48 per cent to total revenues, have shrunk 4.5 per cent over FY09. In spite of being a small business segment, city gas distribution showed promise with growth of 23.72 per cent. It contributed 2.64 per cent with revenues of just Rs 715.41 crore.
Transmission services still hold the key to overall revenues and the growth registered in the segment is encouraging. However, analysts will watch transmission tariffs for margin expansions. Revenues and margins would have been higher in the March quarter but for the reduction in tariff being at Rs 72/scm compared to last year’s Rs 0.88/scm. Analysts will also be watching crude oil prices, as it will have an impact on the extent of subsidies. According to an Ambit Capital report, “Given our crude price assumption of $80/barrel for 2011-12, we estimate GAIL’s subsidy payout to be higher by 15-30 per cent over FY10.” However, they also pointed that GAIL’s earnings per share (EPS) sensitivity is the lowest amongst public sector oil companies such as ONGC and other oil marketing companies. A $1/bbl change in crude price changes GAIL’s EPS by 3 per cent as compared to a 7 per cent change for ONGC and OIL.
With activity remaining strong, and transmission rates expected to rise 35 per cent, GAIL will be in for a good time.
