Sensex Opens Marginally Lower; GAIL Dips 4.4% on Weak Q4 Results

Tue, 23 May 09:30 am

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Asian equity markets are trading mixed today. Japan's markets Nikkei 225 slipped 24 points. Hong Kong's Hang Seng advanced 57 points and China's Shanghai Composite gained 2 points. While, US stocks rose on Monday boosted by technology shares and by defense companies led the market higher for a third session.

Meanwhile, share markets in India have opened the day marginally lower. The BSE Sensex is trading lower by 45 points while the NSE Nifty is trading lower by 2 points. The BSE Mid Cap index opened down by 0.6% while BSE Small Cap index has opened the day down by 0.4%.

Barring information technology stocks and automobile stocks, all sectoral indices have opened the day in red with healthcare stocks and realty stocks leading the losses. The rupee is trading at 64.56 to the US$.

GAIL share price opened the day down by 4.4% after it reported a Rs 2.6-billion net profit for the fourth quarter of the financial year 2016-2017, which is 69% lower than the Rs 8.32 billion-net profit in the same quarter of 2015-2016 on account of impairment of investment in Ratnagiri Power plant.

The company provided for an impairment loss of Rs 7.83 billion out of carrying value of investment of Rs 9.74 billion in the joint venture entity of Ratnagiri Power plant. The power plant has been running lower than its 2,000 MW generation capacity. This is due to the high cost of power produced from gas-based generation facilities. The lower off take and generation were some reasons for the investment impairment, the reports noted.

The sales for the March quarter rose to Rs 136.43 billion from Rs 117.38 billion in the year ago period. Further, the board approved a total dividend of Rs 2.70 per share, taking the total dividend for the year to Rs 15.35 billion for 2016-17.

Meanwhile, GAIL has signed a first-ever time-swap deal to sell some of its US LNG as it rejigs the supply portfolio in line with domestic demand. The company will receive LNG from its shale gas project in the US from March next year.

Under the agreement, it will get 15 cargoes, or about 0.8 million tonnes of LNG, from an unnamed trader this year. In return, GAIL will sell 10 cargoes, or about 0.6 million tonnes, next year from the Sabine Pass on the US Gulf coast.

Moving on to news from stocks in the steel sector. A leading financial daily reported that, Steel Authority of India (SAIL) is hoping to soon conclude a joint venture (JV) agreement with ArcelorMittal, the Luxembourg-headquartered multinational entity.

In 2015, SAIL had signed a memorandum with ArcelorMittal for setting up an automotive steel manufacturing facility, as a JV in in India. The investment indication was about Rs 50 billion.

Reportedly, over the next one to two years, SAIL will achieve a finished steel capacity of 21 million tonnes a year, from the present one of 12.4 mt. The investment in modernisation and expansion is nearly Rs 700 billion.

Meanwhile, the steel ministry is perturbed at the performances of the two PSUs, SAIL and RINL. SAIL has been incurring losses after losses for the last seven reported quarters so far. While the same trend might have continued in the final quarter of the last fiscal, it can even be in the red for the entire current fiscal.

While depressed steel prices have hurt domestic steel firms, the government has taken a series of tariff and non-tariff measures to protect the domestic industry from the onslaught of imports with the latest being imposition of long-term anti-dumping duty for both hot-rolled and cold-rolled products.

No Takers For Domestic Steel

However, the bigger concern is weak consumption growth. The consumption data over the past few months clearly show that there are no takers for domestic steel. So, steel makers have been forced to export more, with overseas shipments up by 78% YoY in the fiscal till February.

A plunge in the prices of steel has seen SAIL reporting a lower top line the last three years, from Rs 534.70 billion in 2014-15 to Rs 439.34 billion in 2015-16 and Rs 313.30 billion in the first nine months of 2016-17. However, the company is targeting revenue of Rs 641.55 billion this fiscal. RINL incurred a loss of Rs 14.21 billion in 2015-16.

SAIL share price opened the day down by 2.2%

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