FA

Assignment :

Submitted By:
Sakshi Gulati

80303180064

GAIL (India) Limited:

Financial Analysis
Table of Contents:

About the Company.......................................................................................................3

Balance Sheet Analysis ..................................................................................................3

Income Statement Analysis ...........................................................................................4

Current Valuation of the company ................................................................................5

Overall expected performance......................................................................................5

Future Outlook............................................................................................................7

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About the company:
GAIL (India) established on 16th August, 1984 was erstwhile known as Gas Authority of India
Limited. It was incorporated with an objective to create gas sector infrastructure for sustained
development of the natural gas sector in the country.
It is India's flagship natural gas company integrating all aspects of the natural gas value chain
including exploration and production, processing, transmission, distribution and marketing and
related services.
GAIL became the first Infrastructure Provider Category II Licensee and signed the country's first
Service Level Agreement for leasing bandwidth in the Delhi-Vijaipur sector in 2001, through its
telecom business GAILTEL. In 2001, GAIL commissioned worlds’ longest and India's first cross
country LPG Transmission Pipeline from Jamnagar to Loni.
The company today has reached new milestones with its strategic diversification into
petrochemicals, telecom and liquid hydrocarbons, besides gas infrastructure. It has also extended
its presence in power, liquefied natural gas re-gasification, city gas distribution and exploration and
production through equity and joint ventures participations. Incorporating the new-found energy
into its corporate identity, Gas Authority of India was renamed GAIL (India) Limited on November
22, 2002.
GAIL is also expanding its business to become a player in the international market. In a rapidly
changing scenario, company is spearheading the move to a new era of clean fuel industrialisation,
creating a quadrilateral of green energy corridors that connect major consumption centres in India
with major gas fields, LNG terminals and other cross border gas sourcing points.

Overview of the company financials -

Balance Sheet Analysis:

 The company's current liabilities during FY19 stood at Rs 9334.45 Crs. as compared to Rs
9901.55 Crs in FY18, thereby witnessing a decrease of 5.72%.
 Long-term debt down at Rs 870.58 Crs as compared to Rs 976.12 Crs. during FY18, a fall
of 10.18%.
 Current assets rose around 2% and stood at Rs 10,308 crs, while fixed assets rose 17%
and stood at Rs 40,288 Crs in FY19.
 Overall, the total assets and liabilities for FY19 stood at Rs 64, 379 Crs as against Rs 58,
082 Crs during FY18, thereby witnessing a growth of 10%.

Current assets:
The companies’ current assets seem to grow steadily, as shown by the graph below. The DCF model
predicts the current assets to grow to Rs 11,794 Crs, at a 14% increase. Also, the trendline shows
the steep increase in current assets.

Fixed Assets:
As the graph below shows, there was a fall in fixed assets, from 2012 till 2017, while the company
introduced Capex plans from 2017, wherein there was an increase in fixed assets.

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Current Liabilities:
The current liabilities fell drastically in FY’19 while are expected to increase in 2020.

Balance Sheet Estimates

0.4

0.3

0.2

0.1

-0.1

-0.2

-0.3

-0.4

Fixed asset Yoy Growth % Current assets Yoy growth % Current Liabilities yoy growth%

Income Statement Analysis:

 Operating income during the year rose to 12.72%.

 The company's operating profit increased by 25% YoY during the fiscal. Operating profit
margins witnessed a decline of about 10.6% during the fiscal, as against an increase in
6.87% in the previous financial year.
 Depreciation charges increased by 9.5% from the previous year, while total expenses
increased by 43%.
 Other income increased by 20% YoY.
 Net profit for the year grew by 30% YoY.
 Net profit margins during the year fell from 8.61% in FY18 to 8.02% in FY19.

2019 2018 2017 2016 2015 2014

Gross Profit Margin 21% 20% 20% 15% 17% 16%

Net Profit Margin 8.02% 8.61% 7.28% 4.43% 5.36% 7.61%

Operating Profit Margin 28.46% 41.72% 157.48% 661.55% 627.57% 469.95%

EBITDA Margin 14.34% 16.12% 15.13% 9.87% 9.90% 13.81%

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Current Valuations for Gail India Limited:

 The trailing twelve-month earnings per share (EPS) of the company stands at Rs 26.72,
an improvement from the EPS of Rs 20.48 recorded last year.
 The price to earnings (P/E) ratio, at the current price of Rs 173.83, stands at 6.5 times its
trailing twelve months earnings.
 The price to book value (P/BV) ratio at current price levels stands at 0.88 times, while the
price to sales ratio stands at 0.51 times.
 The company's price to cash flow (P/CF) ratio stood at 12.6 times its end-of-year
operating cash flow earnings.

Overall expected performance of the company:

 GAIL (India) is good value based on earnings compared to the IN Gas Utilities industry
average.
 GAIL (India) is good value based on earnings compared to the India market.
 GAIL (India) is poor value based on expected growth next year.
 GAIL (India) is good value based on assets compared to the IN Gas Utilities industry
average.
 GAIL (India)'s earnings are expected to grow by 1.1% yearly, however this is not
considered high growth (20% yearly).
 GAIL (India)'s revenue is expected to grow by 4.2% yearly, however this is not considered
high growth (20% yearly).

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 GAIL (India) is not expected to efficiently use shareholders’ funds in the future (Return
on Equity less than 20%).

 GAIL (India) has not efficiently used shareholders’ funds last year (Return on Equity less
than 20%).
 GAIL (India) used its assets less efficiently than the IN Gas Utilities industry average last
year based on Return on Assets.
 GAIL (India) has significantly improved its use of capital last year versus 3 years ago
(Return on Capital Employed).
 GAIL (India)'s level of debt (4.8%) compared to net worth is satisfactory (less than 40%).

 The level of debt compared to net worth has been reduced over the past 5 years (54.2%
vs 4.8% today).

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  Debt is well covered by operating cash flow (359%, greater than 20% of total debt).
 GAIL (India) earns more interest than it pays, coverage of interest payments is not a
concern.

Future Outlook for the Company:

The PNGRB recently announced an integrated tariff hike for GAIL’s HVJ and HVJ upgradation
pipelines (which together handles ~62% of the company’s volumes) to INR41.1/mmbtu (v/s
proposed: INR97.0/mmbtu).

This came in as a dampener for the stock, as the regulator-approved tariff was only ~4% higher
than the weighted average margin of INR39.7/mmbtu.

Thus, if an investor has the shares, I would recommend HOLD call on GAIL factoring in the
aforementioned reasons, along with rising concerns on other business segments, such as: (a)
LPG segment profitability due to the expanding global glut, (b) weakness in petrochemical
segment due to upcoming global expansions, (c) profitability of US long-term contracts due to
declining spot LNG prices. The stock is trading at 20.67 FY19 EPS and 3.6 EV/EBITDA. Thus, it is
better to hold the share and wait for it to reach the target price.

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