Date:25/06/2005 URL: http://www.thehindubusinessline.com/2005/06/25/stories/2005062501820200.htm

Back Rise in raw material price will not hit our margins: GAIL chief

Richa Mishra

New Delhi , June 24

GAIL (India) Ltd is confident that its profit margins would not get affected despite the rise in raw material or feedstock prices.

The rise in input cost, which is expected to be Rs 800 crore per annum, is being caused due to the cap on the natural gas price announced by the Government on Wednesday.

The company is dependent on its petrochemical business and marketing of higher quantity of LNG to generate enough revenues to offset the high costs of raw material.

The Government, with effect from July 1, has put a cap on the price of natural gas at $3.86 per million British thermal unit (mBtu) for 2005.

Speaking to Business Line, Mr Proshanto Banerjee, Chairman and Managing Director of GAIL, said: "The higher cost of raw material will be offset by the additional production of polymer and marketing of R-LNG. I expect the bottomline of GAIL to remain robust in spite of the price of feedstock going up."

The price of $3.86 mBtu is at landfall point for GAIL, he added.

"As far as customers are concerned it is a pass-through item. So, we really are not affected by the price that customers are going to pay."

However, this will also apply to whatever gas GAIL consumes in producing LPG and polymers, Mr Banerjee said.

"These two are our raw material or feedstock. The price increase is going to affect the raw material cost. To that extent we have calculated that the impact will be close to Rs 800 crore annually."

Since the decision comes into effect from July 1, it will only apply to the coming three quarters. "Therefore, Rs 600 crore is the effect which we have to deal with in 2005-06."

Mr Banerjee said: "As a company we are looking forward to the fact that our petrochemical production has been expanded and stabilised at 3.10 lakh tonnes compared to 2.60 lakh tonnes till part of last year. This year we will have the benefit of additional 50,000 tonnes per annum of petrochemical production."

He added: "The second development is that in 2005-06 GAIL will be marketing three million tonnes of LNG compared to 1.5 million tonnes in 2004-05. The additional LNG will give us extra margin."

Moreover, GAIL will transport the entire additional quantity of LNG coming to Dahej.

"We expect to also earn transmission tariff on 2.5 million tonnes of LNG and sales of 1.5 million tonnes of LNG by GAIL."