Gail India: Petchem segment disappoints

Results hit by worse-than-expected performance of the petrochemical segment.

Gail India (Gail) has reported a 12.7 per cent jump in net profit for the quarter ended December 2010 to Rs 968 crore due to a 51.38 per cent rise in other income and a lower tax provision. Net sales increased 35 per cent to Rs 8,365 crore.

However, the operating margin was dented by the petrochemical segment, which saw lower volumes (102 TMT) due to shutdowns at the company’s plant in Pata in Uttar Pradesh. Therefore, petrochemical revenues fell 29.9 per cent to Rs 571.30 crore,. According to an Edelweiss report, sales fell 37.7 per cent to 81 mt.

Natural gas transmission volumes rose 10.2 per cent to 120.2 mmscmd, while LPG transmission volumes surged 11.6 per cent to 893 KT. Transmission services revenues reported 14.27 per cent growth and natural gas trading revenues (Rs 6772.80 crore) increased 49.6 per cent. Ebdita margins witnessed a compression of 480 basis points on higher operating expenditure and lower profitability of the petrochemical business. LPG production volumes declined 28.6 per cent to 265 TMT due to 15-day shutdowns of compressors at Vijaipur and Gandhar. Higher conversion costs due to a rise in natural gas prices also dented margins.

However, analysts are positive on the company due to the likely boost to natural gas transmission volumes on the back of expanding transmission infrastructure and robust gas trading margins. Analysts at Motilal Oswal expect near-term volume growth to be propelled by re-gasified LNG imports due to delay in the KG-D6 (RIL’s gas block) ramp-up. With ongoing expansions, the capacity of the Dahej-Vijaipur pipeline has increased from 24mscmd to 35mscmd. Further, the company plans to add 1,500 km of pipelines in 2011 and raise its transmission capacity from 180 mscmd to 230 mscmd.

Analysts at Anand Rathi estimate 14 per cent compounded annual growth in net profit over FY11-13. At Rs 468.4, the stock trades at 16.3xFY11E and 14.3xFY12E earnings estimates by Prabhudas Liladher.