GAIL reported only a 28% growth in profit for the quarter ended March despite a sharp fall in the subsidy burden. A decline in transmission volumes and precipitous fall in profitability of this key business, among other factors, impeded the growth in profit, which could have doubled with such a big fall in the subsidy burden.
For the March quarter, GAIL’s subsidy burden dropped to just . 587.2 crore, less than half of . 1,398 crore a year ago. Its natural gas transmission business, one of the biggest contributors to its bottom line, witnessed a 46% drop in revenues and 87.5% fall in profits (earnings before interest and tax, or EBIT), as transmission volumes dipped 14% to 99.5 million units per day. The depreciation for the quarter also was higher by 27% at . 273 crore. This indicates that the company’s expanding pipeline network is underutilised.
Other factors that affected the company’s profitability were a three-fold jump in staff cost and a spurt in the effective tax rate to 45.8% of its pre-tax profits.
The performance of GAIL’s petrochemicals division was commendable, lending support to the profit growth. This segment’s EBIT at . 471.6 crore turned out to be more than the EBIT for GAIL’s entire natural gas business — transmission as well as trading — for the first time ever.
Although GAIL’s quarterly numbers appear good overall, its valuations are unlikely to improve unless the natural gas business sees some revival. With domestic production dwindling and imports staying costly and fluctuating, this is not likely to improve anytime soon.
For the March quarter, GAIL’s subsidy burden dropped to just . 587.2 crore, less than half of . 1,398 crore a year ago. Its natural gas transmission business, one of the biggest contributors to its bottom line, witnessed a 46% drop in revenues and 87.5% fall in profits (earnings before interest and tax, or EBIT), as transmission volumes dipped 14% to 99.5 million units per day. The depreciation for the quarter also was higher by 27% at . 273 crore. This indicates that the company’s expanding pipeline network is underutilised.
Other factors that affected the company’s profitability were a three-fold jump in staff cost and a spurt in the effective tax rate to 45.8% of its pre-tax profits.
The performance of GAIL’s petrochemicals division was commendable, lending support to the profit growth. This segment’s EBIT at . 471.6 crore turned out to be more than the EBIT for GAIL’s entire natural gas business — transmission as well as trading — for the first time ever.
Although GAIL’s quarterly numbers appear good overall, its valuations are unlikely to improve unless the natural gas business sees some revival. With domestic production dwindling and imports staying costly and fluctuating, this is not likely to improve anytime soon.
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