India’s biggest natural gas company- Gail has been hit over the past two years marked by an ad hoc subsidy burden and operational issues. Dwindling natural gas volumes are makings its operations less profitable even though it is continuing its expansion projects.
During the past two fiscal years, Gail expanded its natural gas transmission capacity nearly 25% to 214 MMSCMD by spending nearly 6,000 crore to a pipeline length of 10,700 km. Still the natural gas flowing through its network was 18% down in the June quarter to 99 MMSCMDfrom 120 MMSCMD in the quarter to March ’11. This has impacted the return Gail earns on its employed capital (RoCE) which has dropped steadily in the past two years. This has prompted Gail to scale down its capital expenditure plans. Two years ago, it had projected 9,622 crore of capital expenditure for FY14, which was cut to 5,398 crore recently. This strain is reflected in the 33% drop in the company’s value in the past two years. However, there does not appear to be any near-term prospect of improvement.
During the past two fiscal years, Gail expanded its natural gas transmission capacity nearly 25% to 214 MMSCMD by spending nearly 6,000 crore to a pipeline length of 10,700 km. Still the natural gas flowing through its network was 18% down in the June quarter to 99 MMSCMDfrom 120 MMSCMD in the quarter to March ’11. This has impacted the return Gail earns on its employed capital (RoCE) which has dropped steadily in the past two years. This has prompted Gail to scale down its capital expenditure plans. Two years ago, it had projected 9,622 crore of capital expenditure for FY14, which was cut to 5,398 crore recently. This strain is reflected in the 33% drop in the company’s value in the past two years. However, there does not appear to be any near-term prospect of improvement.
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