Gail’s sur­pris­ingly good trad­ing seg­ment per­for­mance boosts Q2 prof­its


ro­bustly by 38% from a year ear­lier, driven by good growth across busi­nesses and a bet­ter op­er­at­ing en­vi­ron­ment.

Gail’s trad­ing busi­ness per­for­mance was a pos­i­tive sur­prise and helped its over­all prof­itabil­ity mean­ing­fully dur­ing the quar­ter.

The trad­ing seg­ment’s earn­ings be­fore in­ter­est and tax (Ebit) in­creased to ₹1,045 crore from ₹420 crore in the year ago pe­riod. Gail ap­pears to have cap­tured a sub­stan­tial por­tion of the $2.35 per mil­lion British ther­mal unit spread in the US & Asian spot LNG prices, ac­cord­ing to an­a­lysts from Jef­feries. “Yet, this may be hard to re­peat,” added the bro­ker­age.

Per­for­mance of the LPG and liq­uid hy­dro­car­bons busi­ness was de­cent as well. On a year-on­sep­a­rately,

A mixed bag year ba­sis, Gail’s petro­chem­i­cals (petchem) busi­ness did not dis­ap­point. The com­pany re­ported a 89% in­crease in the seg­ment’s Ebit. Higher helped.

How­ever, prof­its are lower com­pared to the June quar­ter.

sales vol­ume it came as a slight dis­ap­point­ment that gas trans­mis­sion vol­ume was lower than ex­pec­ta­tions at 106 mil­lion met­ric stan­dard cu­bic me­tres per day.

None­the­less, bet­ter per­for­mance in other seg­ments helped com­pen­sate trans­mis­sion seg­ment’s be­low-ex­pected vol­ume num­bers to some ex­tent.

IDFC Se­cu­ri­ties Ltd be­lieves the mo­men­tum will be sus­tained over the sec­ond half of the year as well, with grad­ual growth in gas/petchem vol­umes, mar­gin im­prove­ment in petchem and trans­mis­sion and sus­te­nance of earn­ings in the LPG and liq­uid hy­dro­car­bons seg­ment.

This should pro­pel a com­pounded an­nual growth rate of 27% in earn­ings per share over FY18-20E, with re­turn on eq­uity/ re­turn on cap­i­tal em­ployed ex­pected to im­prove 390 ba­sis points over the pe­riod, reck­ons IDFC Se­cu­ri­ties. One ba­sis point is one hun­dredth of a per­cent­age point.

What of the stock?

So far this fis­cal year, Gail In­dia’s shares have ap­pre­ci­ated 14%. Cur­rently, the stock trades at 13.6 times es­ti­mated earn­ings for this fi­nan­cial year, based on

data. That’s not too pricey. What’s more, the earn­ings out­look is bright.

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