- The company reported revenues of Rs. 7116cr (Up 17.8% Y-o-Y and 8.3% Q-o-Q), EBITDA came at Rs. 1455cr (up 34% Y-o-Y and 6.7% Q-o-Q). The margins came at 20.4% up 2.4ppt from 18% in Q1FY10. The PAT came at Rs. 887cr(Up 35.2% Y-o-Y, down 2.6% Q-o-Q)
- The natural gas transmission revenues increased to Rs. 896cr from Rs. 733cr (increase of 22% Y-o-Y). The increase was a result of greater volumes and better realizations.
- The volumes increased from 96.68mmscmd to 116mmscmd (Up 20% YoY, up 1% Q-o-Q), as the company had made operational 2 pipelines during the previous Financial year namely Vijapur-Dadri and Chainsa-jhajhar pipeline and Dadri-Babana pipeline.
- The transmission charges increased 1.8% YoY to Rs. 846/tscm as compared to Rs. 831/tscm in Q1FY10
- The LPG transmission revenues came at Rs. 114cr (Up 7.4% Y-o-Y and down 7.2% Q-o-Q). The revenue growth was led by
- Volume growth of 6.3% Y-o-Y to 788TMT from 741TMT
- Realization increase of 1.9% Y-o-Y to Rs. 1441/MT as compared to Rs. 1426/MT in Q1FY10. The company takes an annual increase of 2% on the LPG transmission services
- The Natural gas trading revenues came at Rs. 5452cr (Up 17.5% Y-o-Y, up 16.8% Q-o-Q). The volumes of natural gas traded have remained largely stagnant as the KG Basin gas is being directly placed by Reliance and the company does not trade the gas. The revenue increase was led by
- 6.16% Increase in volumes to 84.86mmscmd from 79.93mmscmd
- 10.64% increase in realizations to Rs. 7040/tscm as compared to Rs. 6363/tscm. The increase is a result of the fact that GAIL has now been allowed to charge marketing margin on the APM Gas it trades and also the APM gas prices were hiked, the full effect of which would only be visible in Q2FY11. The prices of APM gas has been hiked from from Rs 3200/tscm to Rs. 7500/tscm.
Petchem, LPG and liquid Hydrocarbons
- Petchem segment reported revenues of Rs. 637cr (Up 3.6% Y-o-Y) on account of strong realizations which came at Rs. 72/kg as compared to Rs. 68/kg in Q1Fy10 despite sales volume declining to 88TMT from 92TMT
- The LPG segment reported a volume growth of 6.2% Y-o-Y and the other liquid hydrocarbon witnessed a volume growth of 7.9% Y-o-Y. The combined realization for the segment came at Rs. 21951/MT as compared to Rs. 20476/MT (Up 7.2%). The combination of the two factors led to revenues from the liquid and other hydrocarbon segment increasing by 14.2% Y-o-Y. Since GAIL reports the subsidy in this segment, it means the hydrocarbon realization would have witnessed a good growth, as the subsidy payout has increased
Other Line Items
- The EBITDA margins came in at 20.4% in Q1Fy11 as compared to 18% in Q1FY10. The increase in EBITDA is a result of good performance from the LPG and other liquid hydrocarbon segment coupled with the fact that other expenditures declined to 451cr from 485cr as the company booked only Rs. 20cr as dry well expenditures in Q1Fy11 as compared to Rs. 118cr booked in Q1FY10
- The company shared subsidy to the tune of Rs. 445cr as against 74cr in Q1Fy10
Our Expectations
In our view, the core business which according to us includes the Gas and LPG Transmission and Gas Trading is not much dependent on the external factors apart from policy decisions. The Gas and LPG transmission revenues are governed by PNGRB guidelines on how much returns can be made on pipelines and only way of accelerating the revenues from this segment is capacity expansion or favourable changes in calculation of transmission tariffs. The gas trading business is a volume and marketing margin play. With the government allowing GAIL to charge marketing margin on all the gas it transports now, this segment is also expected to benefit. We believe the monopoly of GAIL in terms of pipeline network gives it a stable revenue source from these three segments. The GAIL pipelines once in place would cover all the demand centers and hence the volume offtake will happen through its pipelines.
The only moving part in the entire GAIL story is the subsidy shared by the company and the dependence of its petchem and liquid hydrocarbons realizations on market demand and supply for these products. These are expected to have stable (by stable i mean not absolutely flat but i would say less volatility) performance going forward.
We arrive at a fair value of 473 for the stock and recommend long term investment in the stock.
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