InvestorQ : Can you tell me your views on the latest results declared by GAIL and how it could impact the future outlook for the company?
Mary Joseph made post

Can you tell me your views on the latest results declared by GAIL and how it could impact the future outlook for the company?

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sara Kunju answered.
2 weeks ago
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GAIL India, the government owned national gas company, reported 8.5% drop in the net profits for the September 2020 quarter. To an extent, the losses on marketing of gas were offset by the gains in transportation of gas. That ensured that the negative impact would be under control.

For the quarter ended Sep-20, the net profits were marginally lower at Rs.1068 crore as compared to Rs.1168 crore in the comparable Sep-19 quarter in the corresponding period last year. The total sales revenues also fell sharply by 24% to Rs.14,105 crore on the back of weak gas prices, especially after the government cut gas prices sharply.

If you break up the segmental performance, then GAIL reported pre-tax loss of Rs.335 crore on its natural gas marketing business. While this was only half the loss of the sequential quarter, the losses contrasted with the pre tax profit of Rs.242 crore made by the gas marketing business in the quarter of Sep-19. However, the profits of the gas transportation business were up by 27% at Rs.1021 crore in the Sep-20 quarter.

The COVID-19 pandemic has impacted business in general and this is applicable to domestic and global businesses. This had caused slowdown of economic activity and consequently, it had its impact on the business fortunes of GAIL also. Overall, the assessment done by GAIL is that the impact of the pandemic would not be significant considering that they are part of an essential economic activity.

The big question is whether it would have an impact on the stock valuation. The first thing to understand is that GAIL profits would be largely dependent on gas prices. In India gas prices are fixed every six months for the next six months and these prices are directly linked to the landed cost of crude. As long as crude remains cheap, this segment will have some real reasons to worry about.

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