Notwithstanding good top-line growth in its mainstay - gas transmission and trading businesses, the overall performance of GAIL in the recent December quarter was dragged down mainly due to the poor showing by the petrochemicals segment.

The slower profit growth in the gas transmission business (the biggest contributor to the bottom-line) too did not help. As a result, while the company's revenues grew quite robustly at around 35 per cent over the same period in the previous year to Rs 8,365 crore, net profit rose by a much lower 12.5 per cent to clock Rs 968 crore. This was a reversal of the pattern seen in the first two quarters of this fiscal, when bottom-line growth outpaced or at least kept speed with sales growth.

Consequently, GAIL's margins came under pressure with operating and net margins declining by around 440 basis points (bps) and 230 bps over the previous year respectively.

Segment performance

Continuing its strong run from the September quarter, natural gas trading (contributing more than 80 per cent to revenues) delivered the best performance for the company with an almost 50 per cent growth in sales and an even healthier 75 per cent growth in profit.

Coming on the back of a less than 3 per cent growth in volumes , this performance suggests strong pricing power enjoyed by the segment.

This was aided by the marketing margin on APM gas allowed by the government in 2010. With margins improving to 3 per cent, gas trading pipped petrochemicals to become the second biggest contributor to the company's profits.

The gas transmission business which contributes around half the profits and delivers the best margins (north of 65 per cent), saw volumes grow by 10 per cent to around 120 mmscmd. However, bottom-line growth of this segment, at around 12 per cent was less than the growth in sales, suggesting increased pressure on the cost front.

This may be partly due to high depreciation cost from the pipeline expansion programme.

The petrochemical segment disappointed with volumes, sales and profits all declining sharply (between 30 and 45 per cent). The other major segment, LPG and liquid hydrocarbons, however, delivered 20 per cent profit growth, despite 11 per cent dip in volumes.

GAIL also benefitted to some extent by the reduced subsidy burden in the December quarter (Rs 418 crore compared with Rs 455 crore in the year-ago period).

The markets did not seem enthused by the results, with the stock declining 0.9 per cent in Tuesday's trade.

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