Stock Review: GAIL

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 . 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 . 901.7 crore. A two-and-a-half times spurt in staff cost to . 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 . 400 crore in the first three quarters. The company chose to maintain its dividend payout at . 7.5 per share, amounting to . 950-crore outgo. Gail is in the midst of . 27,000-crore expansion for which it has planned to borrow almost . 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 . 4,020.97 crore as its subsidiaries and JVs remain highly profitable. Revenues grew almost 30% to . 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.