Gail - Aiming higher

Although freed from the subsidy-sharing burden, Gail’s last quarter profits took a hit from a sudden spurt in exploration costs. India’s largest natural gas transporter reported a 13% reduction in its fourth quarter profit to Rs 630 crore after a 24% improvement in net sales to Rs 6,104 crore. The company wrote off Rs 126 crore during the quarter towards expenditure on dry wells in its exploration efforts. Although the drilling activity began at eight of its E&P (exploration and production) blocks during the year, only one discovery was made. For the whole year FY09, the company reported an 8% increase in its PAT to Rs 2,804 crore, on the back of a 32% increase in net sales at Rs 23,776 crore. The healthy performance was despite a 36% higher LPG subsidy of Rs 1,781 crore. The company has proposed a final dividend of Rs 3 per share for FY09 in addition to the interim dividend of Rs 4 per share already paid. In FY09, the company sold 14% more natural gas at 79.1 mmscmd (million metric standard cubic metres per day). The higher volumes as well as increased price helped it post a 45% jump in its revenues from the segment to Rs 18,308 crore. The segment’s profits jumped 70% to Rs 348 crore. Gail plans to improve its natural gas sales volumes by 5% to 83.2 mmscmd in FY10. The natural gas transmission business, which is the largest contributor to the company’s profits, grew 10% to Rs 2,482 crore in FY09 as the volumes transmitted rose 1.5% to 83.3 mmscmd. The profits from the segment were 8% higher at Rs 1,598 crore. The company plans a 14% jump in the natural gas volumes transported in FY10 to 94.8 mmscmd. Gail plans to invest Rs. 5,558 crore during FY10 with over 70% to be invested in pipeline projects. The company’s E&P projects would need around Rs 650 crore, Rs 285 crore will be invested in petrochemicals, Rs 130 crore in business development, Rs 250 crore in city gas projects, Rs 200 crore in Ratnagiri Power Company and the rest in telecom. Although the prospects appear bright for the company, the regulations issued by the Petroleum and Natural Gas Regulatory Board (PNGRB) could become a cause for concern. As per these regulations, the natural gas pipeline tariff being charged by the company for its pipeline networks in operation is subject to revision with retrospective effect. In case of a substantial revision, the company’s future profits could suffer.