Petrochem boosts GAIL Q4 results, subsidy burden weighs

India’s largest gas transporter, Gail, was at the receiving end of the government’s whims, as its March 2011 quarter subsidy burden almost tripled, pulling its profits below the year-ago level. This is unfortunate, considering the company doesn’t benefit from higher oil prices. Still the numbers were better than expected and the scrip gained 1.65% with high volumes.

Gail maintained its growth momentum in revenues with a 36% year-on-year jump for the March 2011 quarter. The petrochemical segment, which played spoilsport during the December 2010 quarter, reported a robust performance with 25% revenue growth. Similarly, revenues from natural gas trading reached a new high of Rs 7,153 crore.

The operating profit margins fell 630 basis points to 14.5%, mainly as a result of the 2.7 times jump in subsidy burden to Rs 901.7 crore. A two-and-a-half times spurt in staff cost to Rs 275 crore was the other key reason. The natural gas trading business, which is the company’s largest revenue earner, reported a 300 basis points improvement in margins to 3.8%, which absorbed the higher costs to a certain extent.

Gail’s subsidy burden for the quarter was higher compared with the average of around Rs 400 crore in the first three quarters. The company chose to maintain its dividend payout at Rs 7.5 per share, amounting to Rs 950-crore outgo. Gail is in the midst of Rs 27,000-crore expansion for which it has planned to borrow almost Rs 14,200 crore by FY13.

The hefty cash outgoes are proving to be a drag on the company’s finances. The company’s consolidated net profit for the year grew 20.8% to Rs 4,020.97 crore as its subsidiaries and JVs remain highly profitable. Revenues grew almost 30% to Rs 35,106.65 crore. Having fallen over 10% in the past three weeks, Gail’s scrip reacted positively to the results. The scrip now trades 13.7 times its consolidated FY11 profit, which is lower compared to its smaller peers.