GAIL – Subsidy burden dents bottomline
GAIL’s net sales grew 0.8% YoY to Rs 62.2bn, in line with our estimate of Rs 63.9bn. During the quarter the company witnessed higher natural gas and LPG transmission volumes, a better transmission tariff, and increased gas trading revenues. However, this was largely offset by a higher subsidy burden and lower petrochemical volumes. GAIL’s subsidy share stood at Rs 4.6bn as against Rs 4bn in Q2FY09. A key positive surprise, the gas transmission tariff rose 5% QoQ to Rs 806/mscm.
The company’s EBITDA margin contracted 719bps YoY to 16.7%, below our estimate of 22.2% due to a higher-than-expected subsidy burden. This coupled with lower petrochem prices offset the benefits of higher transmission margins due to incremental volumes. However, petrochem prices have shown some improvement sequentlially, rising to Rs 69.8/kg in Q2FY10 from Rs 67.4/kg in Q1FY10.
GAIL’s adjusted PAT declined 30.3% YoY to Rs 7.1bn, below our expectation of Rs 8.7bn. However, adjusting for the subsidy burden, PAT is 4.5% above our projection due to strong other income (up 145% QoQ to Rs 1.5bn).
