While the indices have recently scaled a new 52-week high, a stock like GAIL has come crashing down to a new 52-week low. The shares are now trading at Rs 117, a level one would not have anticipated a few weeks ago.
Disappointing quarterly numbers
For GAIL, it all began with a set of poor quarterly numbers, where net profits at the company dived. The company reported a net profit of Rs 1,167.58 crore for the second quarter ending Sept 30, 2019.
This was almost 34.73 per cent lower than Rs 1,788.98 crore net profit reported by the company in the corresponding quarter of financial year 2018-2019.
While most analysts had expected the net profits to fall, nobody had expected such a fall in the net profits. Among the reasons for the decline in the net profits of the company were a fall in international petrochemical and liquid hydrocarbon prices. This has pushed the sale price lower and hence the stock price of the company.
Solid value in subsidiaries
The shares of GAIL no doubt hold tremendous value in associates and subsidiary companies and remains a solid value proposition. Take the case where the company holds a 32.5 per cent holding in Mahanagar Gas and the shares of Mahanagar Gas themselves are trading over Rs 1,000. Another joint venture like Indraprashtha Gas is also a solid value proposition, apart from subsidiaries like GAIL Gas Ltd. It has scores of such high quality subsidiaries and associate companies.
This is what makes the shares of GAIL a value proposition. Apart from this the company is into a business of natural gas pipeline, city gas distribution, petrochemicals, gas sourcing upstream and downstream, LPG and liquid hydrocarbons and a solid overseas presence. There are solid entry barriers in this field, which makes GAIL a virtual monopoly business.
Good on dividend yield
The shares of GAIL are also good on dividend yield. Currently, they are available at a dividend yield of near 5 to 6 per cent, which makes them rather attractive. The shares could reap good dividends in the next one year or so.