Company Overview

1.
COMPANY
OVERVIEW
3.1 ABOUT THE COMPANY
GAIL (India) Limited operates as a natural gas company in India and internationally. The
company involves in the exploration, production, processing, transmission, distribution, and
marketing of natural gas. It also offers liquefied petroleum gas (LPG) and other liquid
hydrocarbons, and petrochemicals. The company owns approximately 7,000 kilometers of
natural gas high pressure trunk pipeline, and 7 LPG processing units for the production of LPG
and other liquid hydrocarbons; a petrochemical complex for producing polymers; and 1,922
kilometers LPG transmission pipeline network. GAIL also has interests in 27 oil and gas
exploration blocks and 3 coal bed methane blocks, and 13,000 kilometers of OFC network. In
addition, the company provides telecommunication services through its high speed optic-fiber
1
network; and generates electric power through its joint venture interests in Gujarat State Energy
Generation, Ltd. It has joint venture agreements with Mahanagar Gas Limited, Indraprastha Gas
Limited, Petronet LNG Limited, Bhagyanagar Gas Limited, Tripura Natural Gas Company
Limited, Central UP Gas Limited, Maharashtra Natural Gas Limited, Ratnagiri Gas and Power
Private Limited, Aavantika Gas Limited, and Green Gas Limited to supply gas to domestic,
commercial, and small industrial consumers in India.
Company at a glance
Incorporated 16th August 1984
Turnover (2009-10) Rs. 24,996 crores
Net worth(2009-10) Rs. 3,140 crores
Employees 3480
Registered office 16 Bhikaji Cama Place, RK Puram, New

Delhi-110066
Market share 78% market share in Natural Gas

transmission
70% market share in Natural Gas
Marketing.
Source: Annual reports of the company
Vision
“Be the Leading Company in Natural Gas and beyond, with Global Focus, Committed to
Customer Care, and Value Creation for all Stakeholders and Environmental Responsibility.”
Key Elements of GAIL's Vision
1. Leading Company
Be the undisputed leader in the Natural Gas market in India and a significant player in the
global natural gas industry, by growing aggressively while maintaining the highest level of
operating standards.
2
2. Natural Gas and Beyond
Focus on all aspects of the Natural Gas value chain and beyond including Exploration,
Production, Transmission, Marketing, Extraction, Processing, Distribution, utilization
including Petrochemicals and Power and Natural Gas related infrastructure, products and
services.
3. Global Focus
Create and strengthen significant global presence to pursue strategic, attractive opportunities
that leverage GAIL's capabilities while effectively managing business risks.
4. Customer Care
Anticipate and exceed customer expectations through the provision of highest quality
infrastructure, products and services
5. Value Creation for All Stakeholders
GAIL will create superior value for all stakeholders including shareholders, customers,
employees, business partners, surrounding communities and the nation
6. Environmental Responsibility
GAIL is committed to operational excellence in all we do with a focus on continuous efforts

to improve environmental performance for ourselves and our customers and will be sensitive
to the needs of the environment in all our actions
Mission
“To accelerate and optimize the effective and economic use of Natural Gas and its fractions to
the benefit of national economy.”
3
Strategy
The company aims to further expand its core business of Natural Gas Transmission &
Marketing, to capture larger share of the growing market. The company wishes to move
upstream to secure gas supplies for the core transmission business. Additionally, investments in
petrochemicals and city gas distribution are being planned to enhance margins and increase
sources of revenue. Further, the company is exploring and investing in international
opportunities with a strategic rationale of gaining international presence.
HISTORY
GAIL (India) Ltd. (erstwhile Gas Authority of India Ltd), India's principal gas transmission and
marketing company, was set up by the Government of India in August 1984 to create gas sector
infrastructure for sustained development of the natural gas sector in the country.
The 2800-km Hazira-Vijaipur-Jagdishpur (HVJ) pipeline became operational in 1991. During

1991-93, three LPG plants were constructed and some regional pipelines acquired, enabling
GAIL to begin its regional gas distribution in various parts of India. During 1994-95 Mahanagar
Gas Limited incorporated to implement Mumbai City Gas Distribution project.
In 1997 GAIL had been granted NAVRATNA status and it had began its city gas distribution in
delhi in same year by setting by nine CNG stations, catering to the city’s vast public transport
fleet.
In 1998-1999, GAIL set up northern India's only petrochemical plant at Pata. It had also
commissioned LPG plants at Usar and Lakwa. The design capacity of Usar plant is 1.39 lacs
TPA and that of the Lakwa plant is 0.85 lacs TPA. Indraprastha Gas Limited (IGL) incorporated
in the same year for supply of gas to household sectors, transport sector & commercial
consumers in Delhi.
During 1999-00, GAIL was awarded with 2 blocks , one with ONGC in Orissa offshore and
another with Gazprom in Bengal offshore. In the same year LPG plant with a designed capacity
of 2.58 lacs TPA of LPG commissioned for commercial production in March 2000.
4
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 world's longest and India's first
Cross Country LPG Transmission Pipeline from Jamnagar to Loni.
In 2001-02, GAIL commissioned GAILTEL Phase –I creating on OFC based DWDM network
connecting Delhi – Mumbai, Delhi – Jaipur, Delhi - Ahmedabad, Delhi – Vijaipur, Meerut –
Agra. Incorporating the new – found energy into its corporate identity, Gas authority of India
was renamed GAIL (India) Limited on November 22, 2002. In the same year it has established
its presence in the CNG and city Gas sectors in Egypt through equity participation in three
Egyptian companies : Fayum Gas Company SAE, Shell CNG SAE and National Gas Company
SAE.
In 2003-04 GAIL had an initial success in the form of significant gas find in the block A-1 in
Myanmar and discovery of Oil and Gas in the Cambay Block. GAIL incorporated Bhagyanagar
Gas Limited, a joint venture of Gail and HPCL, in August 2003, in the field of distribution and
marketing of auto LPG, CNG for vehicles and retailing of natural gas in cities of Andhra
Pradesh. It has also completed VSPL, the 580 km pipeline with a maximum throughput of 1.16
MMPTPA in June 2003 and Phase I & II of 8000 Km network GAILTEL projects connecting
Delhi, Mumbai and 71 other cities.
In 2004-05 it had created a stepping stone for its success into global market by setting up a
wholly owned subsidiary GAIL Global Singapore Pte. Ltd. It has also acquired 9% equity stake
in China Gas Holdings Ltd., a Joint Venture for city gas projects in 42 cities of China. For City
gas projects it has formed 2 joint ventures in same year Tripura Natural Gas Co. Ltd and UP
central Gas Ltd.
In 2006-07, it has formed Brahmaputra Cracker and Polymer Limited – Joint Venture Company
for implementing Assam Gas Cracker Project, Avantika Gas Limited with HPCL and also
brought India’s first spot LNG cargo at Dahej. New HDPE plant with a capacity of 100,000 TPA
at the Petrochemical Complez also completed in the same year at Pata. During the year it had
also commissioned various pipelines, it includes Thulendi – Phulpur pipeline, Kelaras - malanpur
5
GAIL today has reached new milestones with its strategic diversification into Petrochemicals,
Telecom and Liquid Hydrocarbons besides gas infrastructure. The company has also extended its
presence in Power, Liquefied Natural Gas re-gasification, City Gas Distribution and Exploration
& 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.
6
SOURCES AND APPLICATION OF FUNDS AS ON 31ST
MARCH 2009
Figure 2.3 Sources of funds
Figure 2.4 Application of funds
Source: Annual reports of the company. (All figures in Rs. Crores)
7
3.2 SUBSIDIARIES & JOINT VENTURES
Apart from its area of direct operations, your Company has formed joint venture companies for
City Gas Distributions and Petrochemicals. For CNG, the JVs include Joint Ventures overseas
while for petrochemicals,currently your Company has two joint ventures in the country and is
scouting for one overseas. Your Company was the first Company to introduce City Gas Projects
in India for supplies to households, commercial users and for the transport sector by forming
Joint Venture Companies.
GAIL Gas Limited
For implementation of the City Gas Distribution projects, your Company has incorporated a
wholly owned subsidiary, GAIL Gas Limited on 27* May 2008. The setting up of the subsidiary
will also help in part compliance of requirement of unbundling of the business for your Company
which may come in future. The equity holding of GAIL in the City Gas Joint Venture
Companies is also proposed to be transferred to GAIL Gas Limited.
GAIL Gas participated in the 1° bidding round for CGD conducted by PNGRB for 5 out of 6
cities namely Dewas, Kota, sonepat, Mathura, Meerut & Kakinada. GAIL Gas won authorization
for 4 cities namely Dewas, Kota, Sonepat and Meerut in the highly competitive environment.
GAIL Global (Singapore) Pte Limited
Gail has a wholly owned subsidiary, namely, GAIL Global (Singapore) Pte Ltd. to manage
investments abroad. Your Company is looking for further business opportunities through this
subsidiary company
Brahmaputra Cracker and Polymer Limited (BCPL)
GAIL has 70% equity share in Brahmaputra Cracker and PolymerLimited (BCPL) with Oil India
Limited (OIL), Numaligarh Refinery Limited (NRL), Govt, of Assam, each having 10% equity
share.The authorized capital of the Company is Rs. 1,200 crores. Feedstock Supply Agreements
have been signed between Brahmaputra Cracker and Polymer Limited (BCPL) and allthe three
8
suppliers viz., Oil and Natural Gas Corporation Limited, Oil India Limited and Numaligarh
Refinery Limited. Technology license agreements have been signed for cracker, polyethylene
and polypropyleneunits.
AGL is a Joint Venture of GAIL and Hindustan Petroleum Corporation (HPCL) for
implementation of City Gas Projects in the cities of Madhya Pradesh. Your Company has 22.5%
stake in the Company alongwith HPCL as equal partner. MOPNG has authorized AGL for CGD
in Indore, Gwalior& Ujjain.
In Indore, AGL is operating 4 CNG stations to serve more than 450vehicles whereas, in Ujjain, it
is operating 1 CNG station.Till date, AGL has invested about Rs 13.9 crores and planning to
expand the existing network to the surrounding areas as well as implement CGD
network in the new cities like Gwalior and Ujjain.
BGL is currently operating two Auto LPG station in Hyderabad and one Auto LPG station in
Tirupathi.lt is currently operating 6 CNG stations in Vijaywada and three CNG stations in
Hyderabad and one CNG station in Rajahmundery.
Gail has 22.5% stake in the Company along with HPCL as equal partner. Till date, BGL has
made a total investment of Rs. 23.62 crores. BGL has received authorization from MOPNG for
CGD in Hyderabad &Vijaywada.
BGL has plans to expand the existing network to the surrounding areas as well as implement
CGD network in the new cities like Rajahmunderyand Kakinada.
Accordingly, BGL has also submitted bid for the city of Kakinada in the bidding process
initiated by PNGRB.
CUGL is currently operating six CNG stations in Kanpur and two CNG stations in Bareily.
Recently, CUGL commenced its domestic supply of PNG with connections to 35 households.
GAIL has 22.5% stake in the Company along with BPCL as equal partner.
Till date, CUGL has made a total investment of Rs. 60.19 crores. in Kanpur and Bareilly CGD
projects. It has received authorization from MOPNG for CGD in Kanpur & Bareilly.
MOPNG has authorized GGL for CGD in Lucknow
9
2. LITERATURE
REVIEW
10
GAIL (India) Limited is a public behemoth with a Net Worth of more than Rs. 14000 crores. It
has monopoly in the segment of Gas Transmission with a market share of around 80%. It has
performance in financial terms has showed an upward trend over the year and is expected to
grow with same compounded annual growth rate over next few years.
Various analyses has been done every year to analyze the financial performance of the industry
and to supplement the investors decision whether to invest or not. It includes research by Global
Equity, Edelweiss, CRISIL and many others.
This report shows the financial performance of the GAIL (India) Limited over a decade 1999-00
onwards which indicates that company’s performance has witnessed consistent growth over the
years in term of PAT and Gross margin. Its revenue has also improved over the years. Segment
wise Gas Transmission is the major contributor in the growth of revenue of the company.
However its proportion has declined because of growth of other segment like Petrochemicals and
Liquid hydrocarbons.
It also shows that GAIL’s Debt-Equity ratio is much low in comparison to prevailing industry
standards, which indicates that company, has ample scope to grow exponentially. Net Worth per
rupee of equity capital has almost doubled from 5.5 times to 12 times, signifying the increase in
value of shareholder’s stake in the business. Though GAIL has monopoly in the field of Gas
Transmission, with small presence in Petrochemical and E&P segment but still it is a small
player in comparison to other players like Reliance and ONGC.
There are further prospects for the study to be done, to analyze the segment which are not
profitable for the company in long term, to find ways in which tax payments made by the
11
company can be reduced as tax payment constitute almost 50% of the PAT of the company and
to analyze the areas from where debt can be raised to exploit the present and future opportunities.
3. INDUSTRY
OVERVIEW
12
5.1 Natural Gas
Natural Gas has been rightly termed as the fuel of the 21st century. Natural Gas, third largest
contributor to the global energy basket, is projected to increase at a rate faster than any other
energy source. The global gas markets are fast integrating, commercial models are undergoing
rapid changes, and the market structure are evolving and fast changing. Leading this growth in
global gas sector are the Asian markets with special investment focus on countries like China
and India.
Both Countries, today use relatively small amounts of gas, but they could become major global
consumers in the future. Rising demand for imported gas in China and India will also shape the
LNG market in the Pacific Basin and could lead to the construction of major international
pipeline projects t monetize gas supplies in Russia and the Middle East.
Global Scenario
World Natural Gas Consumption
13
As per EIA’s projection worldwide total natural gas consumption would increase from 104
trillion cubic feet in 2005 to 158 trillion cubic feet in 2030. World oil prices are expected to
remain high, and as a result natural gas replaces oil wherever possible. And also Natural Gas
produces less carbon dioxide when it is burned than does either coal or petroleum.
Natural Gas remains a key energy source for industrial sector uses and electricity generation
throughout the projection. The industrial sector, which is the world’s largest consumer of natural
gas, accounts for 43% of projected natural gas use in 2030. Electricity generation accounts for
35% of the world’s total natural gas consumption in 2030.
Indian Scenario
The Natural Gas ecosystem is being dominated by explorer and producers (ONGC, OIL AND
JV’s): processing companies (ONGC, GAIL, OIL AND IPCL) and transmission distribution and
marketing (GAIL, GSPC AND JVs) entities.
This recession has no effect oin demand of Nartural Gas in India, 60% of demand in india is met
by Indian companies. India’s natural Gas demand is expected to witness a strong growth due to
underutilization of capacity in power, fertilizaer and other industries. The demand supply gap is
also set to reduce due to increase in prodcuition by 60 percent in the current fiscal on the back of
higher output from Reliance Industries eastern offshore KG basin Block.
India’s Natural Gas Demand
14
As per Report of the working Group on Petroleum and Natural Gas for the XI Plan (2007-2012)
current demand is 72 BCM and is estimated to be around 102 BCM in where 2011-12, whereas
current supply is 43 BCM and would be around 104 BCM in 2011-12. Target for the year 2008-
09 could not be achieved as the production of Gas from KG- DWN-98/3 could not be started.
Sector wise Natural Gas Demand
15
Gas demand in India is currently dominated by Power sector. Furthermore the demand of Gas
from the Fertilizer sector, which is dependent on Government Regulation, price of gas and price
of alternative liquid feed stock and financial strength of the other players in Fertilizer sector, is
also estimated to increase.
Natural Gas is also expected to command a significant share in retail market in the form of CNG
and PNG over competing fuels.
India’s Natural Gas Supply
Natural Gas supply is expected to increase by 143% over the next five year because many gas
discoveries are starting their production and various LNG projects are being commissioned or
expanded. Transnational gas pipeline are being planned and pursued with great zeal by
companies like GAIL, RELIANCE etc. This will result in better flow of gas to the deficit regions
of the country. There are also new sources of Global fuel like Coal Bed Methane, Underground
coal Gasification etc.
Sector wise Natural Gas Supply
16
On the gas supply side, the domestic supply is expected to be primarily driven by the supply
from the KG basin, with production from RIL’s KG D-6 block already happening and potential
production from GSPC’s block. Supply by ONGC contributes to 36% of the total in 2008-09.
Supply from Private player/JVs is expected to increase frm 18 BCM to about 35 BCM in 2011-
12. This increase is primarily due to the 14 BCM gas supply addition from RIL from 2008-09
onwards. DGH has also projected additional supplies of 7, 11 and 14 BCM from RIL fields in
2009-10, 2010-11 and 2011-13 respectively and 20 BCM from GSPC in each of the above years
GAIL’s Standing
GAIL owns and operates a network of 7000 Km of natural gas high pressure trunk pipeline with
7 Gas processing plants. It supplies over 80 million cubic meters of natural gas per day as fuel to
power plant, feedstock for gas based fertizlier plants and to over 500 small, medium and large
industrial units to meet their energy and process requirements. GAIL’s share of transmission
business is 79% and it holds 70% market share in gas marketing in India.
17
Natural Gas Continues to constitute the core business of GAIL. During the year 2008-09, gas
trading volumes has increased to 28 BCM from 25 BCM in previous financial year. The gas
transmission volumes has 30 BCM as compared to 29 BCM in previous Financial year.
Gas volumes transported by GAIL are expected to jump due to infrastructural bottlenecks being
eased due to large investment being made in this sector. Energy intensive sectors like fertilizers
power generation and refining have been forced to use liquid fuels due to paucity will decrease.
It will increase the volumes transported and GAIL being market leader is best positioned to take
advantaged of same.
GAIL continues to have focus on securing gas supplies from international market. LNG and
transnational pipeline are the two prevalent modes of cross border gas trade and company has
been making all efforts to bring natural gas in the country.
5.2 Petrochemicals
Global Scenario
18
There is a gradual shift in the global Petrochemical scenario after the gradual shift in Oil prices
from the level of US $ 149 to the tune of US $50-60. The sharp fall in crude oil prices has
resulted in a correction in prices of feedstock and petrochemical products. With the Global
economy facing crisis, there is a steep fall in demand.
The Middle Eastern region has been developing newer petrochemical complexes due to having
advantage of richer Oil Fields. By 2015, the Middle East region is expected to surpass Europe in
terms of ethylene capacity, means incremental pressure on product prices. On the other hand
Asian countries like India and China has increased their demand, since downstream processed
product of daily use require Petrochemicals. The demand in china is expected to rise 9% every
year as compares to 1.8% in America and Europe. The U.S Petrochemical industry which was
Leading the market, is facing slump due to competitive and resource constrait.
Indian Scenario
Indian Petrochemical Industry is very small in comparison to International industry. It is

dominated by RIL, HPL, and GAIL. In the next 5-6 years, India is expected to become a
Petrochemical Hub. The grpwth in downstream production of Petrochemical would be supported
by increase in their consumption as well. The current growth rate of 3-4% expected to increase
gour fold i.e. 12-14% by next 5-6 year. Growth rate of Polymer consumption in india is higher
i.e. 12.7% in comparison to China i.e 11.7%.
GAIL’s Standing
GAIL owns and operate a gas based integrated petrochemical plant at Pata, Uttar Pradesh, with a
capacity of producing 4,10,000 TPA of polymers i.e. HDPC and LLDPE, which has been
enhanced by 1,00,000 TPA from the earlier capacity of 3,10,000 TPA. GAIL is currently in the
19
process of Setting up a 2,80,000 TPA Assam Petrochemical complex at an investment of Rs.
5460 Crores. During Financialyear 2008-09 sales volume was 423 TMT as compared to 391
TMT of 2007-08
5.3 Exploration and Production (E & P)
Global Scenario
20
Globally proved reserve of Natural Gas have increased by 7.97 TCM in 2008 and the Reserve to
production ratio is 60.4 years, Turkmenistan and Iran accounts for the most od the growth. Out
of total proved reserves for 185.02 TCM around the world, 41% is in Middle East, while Asia
Pacific accounts for 8.3%. about 88% of world’s proven oil reserve are under the control of
National Oil Companies (NOCs) with no equity participation by International Oil Companies
(IOCs) in them. Deep waters, arctic and unconventional geographies are emerging as the new
source of Oil and Gas.
Indian Scenario
India imports about 2/3rd of its domestic Crude Oil requirement. Exploration and Production of
Oil and Gas is a necessity for economic growth of the country. During last decade E &P industry
has marked a robust growth rate due to soaring oil price and high demand especially from
developing nations. Under NELP 37 Oil and Gas discoveries have been made in Cambay on
land, North East Coast and Krishna-Godavari deepwater areas. India accounts for 0.6% of the
total proved reserves in the world, with the capacity of 1.09 TCM.
GAIL’s Standing
GAIL is involved in Oil and Gas Exploration activities over acreage of 1.7 Lac sq. Km. Gail now
holds a participation interest between 10-80% in 27 Oil & Gas exploration blocks and 3 CBM
blocks. Of these, 10 are on-shore blocks and 17 are off-shore blocks.
In India there are 24 blocks which are in basins such as Mahanadi, Bengal, Gujrat-saurrashtra,
Mumbai, Cambay, Assam-Arakan and Cauvery. GAIL has got stake in A-1 and A-3 blocks in
Myanmar and Block No.56 in Oman. Eight discoveries have been reported in GAIL’s four
domestic it includes Cambay onshore, A1 & A3 Block – Myanmar, Cauvery offshore & onshore,
Mahanadi offshore and Ankleshwar onshore. This segment will start generating cash from FY
2012 as discoveries in Myanmar, Oman, and domestic blocks are developed and monetized.
Further it’s CBM and NELP blocks expand the potential for exploration upsides.
21
5.4 Liquefied Petroleum Gas (LPG)
Global Scenario
22
LPG stands for Liquefied Petroleum Gas, quite unlike crude oil it is supply driven as it is a by
product of Oil and Gas production. It is expected that its supply would increase to 75 million
tons by 2010 and to 85 millions tons by 2015. There are three major outlet for LPG supplies i.e.
India, China and United States. It is expected that total LPG demand in China would increase to
28 million ton by 2010.
India Scenario
In India LPG industry is dominated by IOCL, BPCL, HPCL, and GAIL (India) Ltd. LPG is
consumed by various categories of customers like domestic, Non domestic, bulk and auto LPG.
LPG production in India is insufficient to meet the demand and therefore imports are used to
meet the deficit. During 2008, actual sales were 11820 TMT, against the total availability of
9228 TMT. It is expected that total LPG demand for the year 2009 would be 12570 TMT at a
growth of 6%, where as total imports would be 3112 TMT.
GAIL’s Standing
Gail has 7 LPG plants in the country. It has 1900 LPG pipeline network, 1300 km of which
connects the Western and Northern parts of India and 600 Km of the network is in the Southern
part opf the country. The LPG transmission has a capacity to 1039 TMT in 2007-08, it only deals
in bilk amount rather than retail sales to small consumers. Whereas total LPG transmission
23
6. Results &
Discussion
6.1 Trend Analysis
GAIL has been a consistent performer through out its journey of 25 years. Started from
Transmission business, it has diversified into LPG, LHC, Petrochemicals, Telecom, and
24
Exploration & Production. In the research report, financial records for a decade from 1999-00
onwards have been taken to analyze the financial performance of GAIL (India) Ltd. And
projections are made for 2009-10 on the basis of CAGR of last 10 years.
Physical Performance
There has been a continuous improvement in the physical performance of the company since last
decade, due to regular investment and up gradation by the company. GAIL has entered into
various Joint Ventures to strengthen its position in the industry.
Sales of Natural Gas
Sales of Natural Gas for Transportation have been increased from 21.52 BCM in 1999-00 to
29.75 BCM in 2008-09, registering a CAGR of 3.62%. As per Budgeted estimate, it should be
around 30.82 BCM in 2009-10. Where as sales of Natural Gas for marketing has been increased
from 21.52 BCM in 1999-00 to 28.23 BCM in 2008-09, registering a CAGR of 3%. Till 2003-04
volumes of Natural Gas for Marketing and Transmission was same because company had both
Marketing and Transmission Rights for the volume available at that time. As per budgeted
estimate, marketing volumes should be around 29.69 BCM in 2009-10.
25
Sales of LPG has increased from 756 TMT in 1999-00 to 1092 TMT in 2008-09, registering a
CAGR of 4.1%. As per budgeted estimate, it should be around 1137 TMT in 2009-10.
Sales of SBP/Pentane/Propane
Sale of PROPANE has increased from 64 TMT in 1999-00 to 153 TMT in 2008-09, registering a
CAGR of 9.9%. As per budgeted estimate, it should be around 168 TMT in 2009-10. Where as
sale of PENTANE has increase from 16 TMT in 1999-00 to 58 TMT in 2008-09, registering a
26
CAGR of 14.7% as per budgeted estimate, it should be around 67 TMT in 2009-10. And the sale
of SBP/NAPTHA has increased from 41 TMT in 1999-00 to 101 TMT in 2008-09, registering a
CAGR of 10.5%. As per budgeted estimate, it should be around 112 TMT in 2009-10.
Sale of POLYMER has increased from 119 MT in 1999-00 t0 422 TMT in 2008-09, registering a
CAGR of 15%. As per budgeted estimate, it should be around 486 TMT in 2009-10.
27
Pricing structure for different segments of GAIL (India) Limited are a follows:
Prices of APM Natural GAS are $ 1.97/ MMBTU for power & fertilizer and $ 2.36/MMBTU for
City Gas, where as for North East consumers, it is available at $ 1.18/MMBTU for power &
fertilizer and at $ 1.42/MMBTU for City Gas. On the other hand RAVVA Gas is available at $
3.50/MMBTU and RAAVA Satellite at $ 4.30/MMBTU. RIL gas which is yet to start would be
available at $ 4.2/MMBTU approximately.
Transmission tariffs are the main source of revenue for the company. For HVJ/DVPL it has
increased from Rs. 1150/MSCM in 2000-01 to Rs. 1016/MSCM in 2008-09, it fell to Rs.
908/MSCM in 2006-07 because of increase in gas volumes in pipeline, whereas for DUPL/DPPL
it is Rs. 1037/MSCM. Tariff structure for LPG transmission Pipeline has shown consistent
growth over the year i.e. 2%. It is Rs. 1/MT/Km for JlPL and Rs 2/MT/Km for VSPL.
Average LPG price has also increased from less than Rs 13000/MT in 1999-00 to Rs. 33176/MT
in 2008-09. Whereas average Polymer prices has increased from less than Rs. 39000/MT in
1999-00 to Rs. 76546/MT in 2008-09 and is expected to be Rs 60000/MT in 2009-10.
Financial Performance
28
Revenues and Expenditure
Revenue & Expenditure
Company’s revenue has witnessed a CAGR of 13.9% with the corresponding increase of 14% in
expenditure. Total expenditure has increased from Rs. 6936 crores to Rs. 22893 crores in 2008-
09. As per budgeted estimate, it should be around Rs. 26259 crores in 2009-10. However there
was marginal fall in expenditure of the company during 2003-04 due to fall in Manufacturing
and Transmission expenses.
Total expenditure for 2005-06 was 29% higher than corresponding previous year on account of
large amount spent on Purchase of Gas due to higher volume of RLNG and Gas price hike from
01/07/2005. All expenses were higher than corresponding previous year. Higher Gas prices,
increase in E&P expenses, provision of retirement benefit, adjustment done for Gas pool account
for the year 2004-05 was the reason for increase in expenses.
Other operating expenses have also increased from Rs. 1367 crores in 1999-00 to Rs. 2491
crores in 2008-09, registering a CAGR of 10.3%. As per Budgeted estimate , it should be around
Rs. 2724 crores in 2009-10.
29
Major part of the total expenditure is incurred on Raw Material, stores and spares, Repairs and
Maintenance, Power and Fuel, Salaries and Wages. Raw material accounts for 85-90% of the
total expenditure. It has increased from Rs. 5569 crores in 1999-00 to Rs. 20402 crores in 2008-
09 because of increase in Gas prices, APM gas which was earlier available at $1.97/MMBTU is
now available at $4.75/MMBTU, PMT cost $5.7/MMBTU which was earlier at $3.5/MMBTU,
RLNG which was available at $2.53/MMBTU till December 2008 would be available at 60
month’s moving average price. It is Rs. 20402 in 2008-09 and is expected to be Rs. 23534 in
2009-10.
Expenditure on stores and spares has increased from Rs. 106 crores to Rs 206 crores in 2007-08
and in 2008-09 it has fallen to Rs. 195 crores, where as expenditure on Repair & Maintenance
has increased from Rs. 48 crores in 1990-00 to rs. 124 crores in 2007-08. In 2008-09 it was Rs.
115 crores and is expected to be Rs. 127 crores in 2009-10 because of increase in Average sales
quantity and cost of supplies. In 1999-00 expenditure on Power & Fuel was Rs. 309 crores ; it
has increased to Rs. 894 crores in 2008-09. Salaries and Wages which was between Rs 100 – Rs
150 crores since 1999-00 has increased to Rs. 206 crores in 2004-05. In 2007-08 it was at Rs.
470 crores due to revesion in wages and salaries. In 2008-09 it is at its highest Rs. 577 crores due
to further revision in wages and salaries by Government of India. And in 2009-10 it is expected
to be Rs. 682 crores.
Rise in expenditure is mainly attributed to, increase in consumption of Gas and Raw material.
Also there has been a sharp rise in the prices of Natural Gas and other Liquid Hydrocarbons
during last decade, due to their linkage with Crude Oil prices and Foreign exchange rate.
The main segments of revenue for the company are Natural Gas Trading & Transmission,
Petrochemical and LHC because in all segments transactions take place at market price and also
the setting up of pipelines for transmission is one time investment. Where as in other segments
like LPG, there is government regulated market and company has to bear large amount of
subsidy year by year. Other incomes in the form of interest and divided have also increased
during last decade. Natural gas contributes to more than 65% of total revenue of the company,
Petrochemicals and LHC & LPG follows it with a share of around 14% each and rest is shared
by LPG pipeline, GAIL TEL and other segments of the company.
b. PAT and Gross Margin
30
PAT of GAIL (India) Ltd. has been showing CAGR of 16.6%, which is a good indicator of
financial health of the company. GAIL has completed the journey from lakhs to more than Rs,
2500 crores of PAT with in a short span of 25 years. PAT has increased from Rs 692 crores in
1999-00 to Rs 2804 crores in 2008-09. As per budgeted estimate ( on the basis of CAGR of last
10 years) it should be more than Rs. 3000 crores in 2009-10.
PAT & Gross Margin
Gross margin of the company has also increased from Rs. 1518 crores in 1999-00 to Rs 4851
crores in 2008-09, registering a CAGR of 13.6% and is expected to be around Rs 5417 crores in
year 2009-10.
In 2002-03 Gross Margin showed an increment of 23% corresponding to previous year due to
higher volume of Natural Gas, LPG and other Liquid Hydrocarbons. PAT for 2005-06 was Rs
2310 as compared to Rs. 1953 crores of corresponding previous years. Increase in profit is
mainly attributable to higher throughput of Gas, price hike in LPG, LHC and Petrochemical
Prices, higher interest ad dividend incomes, decrease in Pipeline depreciation rate from 10.34%
to 3.17% decrease in interest and lower subsidy of Rs. 73 crores as compared to the previous
year.
31
In 2006-07 PAT increased from Rs. 2310 crores to Rs. 2387 crores registering a growth of 3%.
However PBT had shown a dip of 13% i.e from Rs. 3277 crores in 2005-06 to Rs. 2860 crores in
2006-07. It was because of decrease in Natural Gas transmission from Rs 1642 crores to Rs.
1448 crores, primarily due to decrease in Gas throughput due to flood in Gujrat. There was also a
dip in PBT from LPG and other LHC by 84% corresponding to previous year, due to higher
subsidy of Rs. 1488 crores and increase in cost of Raw materials. During same year tax liability
was also reduced due to fall in effective tax rate from 29.50% to 28.42% and dip in PBT.
Gross Margin for 2005-06 and 2006-07 was also low, in comparison to previous year, i.e growth
of 2% and -12.3% due to high expenditure in blocks in Exploration & Production segment by the
company. Till now GAIL has 27 blocks. Out of which 7 are expected to start production by
2010-13.
Also the gross margin for Natural gas and LPG & LHC showed poor performance during 2005-
06 and 2006-07 due to high increment in prices and large burden of subsidies. GAIL had to bear
the subsidy of Rs. 1488 crores in year 2006-07 as compared to subsidy of Rs. 1064 crores in
2005-06.
During 2007-08 PAT was Rs. 2601 crore, registering a growth rate of 9% over previous year due
to increase in average sale price, lower than LPG subsidy by Rs. 174 crores, reduction in
material cost due to Rupee appreciation. During the same year Tax Liability also increased from
Rs. 473 crores to Rs. 1254 crores because of expiry of tax holiday benefit U/s 80 I of the Income
Tax Act in case of UPPC pata and higher PBT by Rs. 995 crores over corresponding Previous
Year.
PAT for 2008-09 is Rs. 2804 crores as compared to Rs. 2601 for the corresponding previous
year. The major reasons behind this increment are increase in average sale price.
If LPG subsidy has not been there :
As a part of the government, GAIL (India) Ltd. is required to share subsidies for losses in
domestic LPG because of under recoveries of government oil marketing companies since 2003-
04. If LPG subsidy was not there, the picture might be entirely different. During 2003-04, Rs.
32
428 Crores was deducted from the profits of the company in the form of LPG subsidy , which
means PAT could be Rs. 2297 crores against Rs. 1869 Crores. In 2004-05 subsidy increased to
Rs. 1137 crores reducing profit thereby with the same amount. While in 2005-06 it was Rs. 1064
Crores, if it was not there PAT could be Rs. 3374 crores implying a growth of 46% in the profit
for the same year. In 2006-07 and 2007-08 also company had to bear a large amount of
subsidies, leading to a fall in the profit by Rs. 1488 crores and Rs. 1314 crores.
With a sharp decline in crude oil prices over last few months, it can be projected that under
recoveries would be declined leading to a huge fall in LPG subsidy sharing by the GAIL (India)
Ltd. In 2008-09 it is Rs. 1781 crores to and is expected to fall to Rs. 800 Crores in 2009-10,
leading to a huge rise in the profits of the company.
Financial Position
33
Balance sheet of a company is also called the “ Statement of financial position “. It gives the
information of how the company has been financed and how that money has been invested in
various productive resources.
Long -Term Solvency
GAIL’s total funds have increased from Rs. 7098 crores in 1999-00 to Rs. 17296 crores in 2008-
09, registering a CAGR of 10.3%. It is projected to be Rs. 19789 crores in 2009-10. GAIL has
not made any issue of new equity share since last decade. Its share capital was Rs. 845.6 crores
representing 84,56,51,600 Equity shares of Rs. 10 each fully paid up till 2007-08, which has
increased to Rs. 1268 crores in 2008-09 because of issue of Bonus Shares by the company to the
existing shareholders in ratio of 0.5:1. Its reserve and surplus has increased from Rs. 3880 crores
in 1999-00 to Rs. 13501 crores in 2008-09. It is projected to be around Rs. 16045 crores in 2009-
10. GAIL’s projects are mostly financed through internal funds and hence the proportion of debt
to Equity is low. As such they have satisfactory long-term financial position.
Short-Term Solvency
The short term liquidity of a company can be assessed by looking at the proportions of net
current assets to total assets. It was 2% in 1999-00 which has increased to 16% in 2008-09. This
can be attributed to two factors – one, increase in proportion of cash in current assets from 34%
in 1999-00 to 43% in 2007-08, however it declined to 28% in 2008-09 and relatively lower
percentage of current liability which has increased from 23% in 1999-00 to 32% in 2008-09. It is
projected to remain same in 2009-10, because of pressure on cash and bank balance of the
company due to increase in investment opportunities. A closer look at the cash flow information
of GAIL (India) Limited reveals that actual net increase in absolute cash has increased from Rs.
454 crores in 1999-00 to Rs. 1813 crores in 2007-08.
Composition of Fixed Assets
34
Since GAIL (India) Limited is a gas company with major focus on Gas transmission, its major
Fixed assets comprise Plant and Machinery and Land & Building. A look at the notes to accounts
and the schedules to balance sheet reveals that in 1999-00 out of gross block of assets 98% are
Plant & Machinery and Land & Building which remained approximately same in 2008-09 and is
expected to remain in 2009-10.
The proportion of Net Fixed assets which was Rs. 5555 crores in 1999-00 has increased to Rs.
9050 crores in 2007-08 out of which Rs. 65 crores accounts for Intangible assets. It is expected
to be Rs 9456 crores in 2009-10.
While Land & Building and Plant & Machinery have been depreciated in accordance with the
rates as specified in schedule XIV of the companies Act 1956, on the straight line method (SLM)
on pro-rata basis, Oil and Gas pipelines are depreciated at 3.17% per annum on SLM basis based
on useful life of 30 years.
Investments
The proportion of investments also shows considerable variations over the year. It has increased
from Rs. 632 crores in 1999-00 to Rs. 1737 crores in 2008-09. It is expected to be Rs 1942 crores
in 2009-10. Introduction of new gas by Reliance would require up gradation of existing pipelines
and introduction of new ones, which would be completed in two phase by the company and
hence require further investment, for which GAIL has to resort to external sources.
Availability of Cash
Company’s cash flow position was good till 2005-06, after that it started declining because of
internal financing of the projects. In 2006-07 it was Rs. 2660 crores, because of investments in
projects worth Rs. 2044 crores. In 2007-08 it Rs. 4473 crores because of higher cash flow from
operating activities. In 2008-09 it is Rs. 3456 because of large amounts of investment by the
company in the form of fixed assets and large amount of dividend paid. During 2008-09 net cash
used in Investing and Financing activities are Rs. 2252 crores and Rs. 1343 crores respectively. It
is projected that in 2009-10 net cash used would be around Rs. 1106 crores.
35
6.2 Segment Wise Trend Analysis
36
Natural Gas
Natural Gas is one of the key business segments of GAIL (India) Ltd. Its sales volume is
dependent on the production capacity of ONGC (Maharashtra). During 1999-00 it was 21.52
BCM for transmission and marketing. It has reached to 29.57 BCM for transmission and 28
BCM for marketing in 2008-09. During 2004-05 there was a huge rise in sales volume, due to
introduction of RLNG from Dahej petronet plant. Sales volume for 2005-06 was also 10% higher
than corresponding previous year, due to high increment in sales volume of RLNG i.e. 72% over
previous year. It is also estimated that sales volume for Natural Gas transmission and marketing
should also increase by 16% and 6% in 2009-10, due to introduction of Gas from RIL KG basin.
Natural gas price has increased to $1.97 MMBTU w.e.f 01/07/2005 for power and Fertilizer and
for North East customers it is $ 1.18/MMBTU, where as Market driven price of APM GAS are
$4.75 MMBTU for Maharashtra & Gujrat and $1.97 MMBTU for North-East parts of the
country. It keeps on changing because of their linkage with Exchange rate.
Gas from Panna-Mukta and Tapti JV fields is one of the expensive gases available in the market.
It has increased from $4.75 MMBTU to $5.7 MMBTU. Up till December 2008 RLNG was
available at $2.53 MMBTU because of the contract entered into by the company; however in
market its price has touched $20 MMBTU. From January 2009 it has been decided that its price
would be fixed on the basis of 60 months moving average.
Transmission tariff for HVJ/DVPL has reduced from Rs. 1150/MSCM to Rs. 1016/MSCM and
is expected to fall by Re 1 in 2009-10 and for DUPL/DPPL it is Rs. 1037/MSCM.
37
Natural Gas revenue has shown a CAGR of 15%. It has increased from less than Rs 8000 crores
in 1999-00 to Rs. 20855 crores in 2008-09. Gas trading revenue for 2005-06 was 18% higher
than corresponding previous year. RLNH sales and higher prices were the major reason behind
this increment. During the same year Gas transmission revenue has also witnessed a growth of
12% over previous year.
During 2006-07 Gas Trading revenue increased from Rs. 8401 crores to Rs. 9522 crores due to
increase in gas prices to $4.75/MMBTU. Where as the Natural Gas transmission revenue has
decreased from Rs. 2307 crores to Rs. 1949 crores and this is primarily due to decrease in Gas
transmission on account of flood in Gujrat. In 2007-08 revenue from Natural Gas trading and
transmission increased to Rs. 10332 crores and Rs. 2026 crores, increase in trading quantity and
average sale price due to pooled RLNG & spot RLNG sales were the major reasons behind this.
Purchase of Gas is the main constituent of total expenditure, of Natural Gas segment of the
company. It has increased from less than Rs. 6500 crores in 1999-00 to Rs. 12517 crores in
2007-08 and is Rs. 17946 crores in 2008-09. However total expenditure has increased from Rs.
6000-6500 crores in 1999-00 to Rs. 18660 crores in 2008-09, registering a CAGR of 17%.
On the other hand Power & Fuel is the main constituent of operating expense accounting for Rs.
117 crores in 2002-03 out of Rs. 488 crores, in 2007-08 it increased to Rs. 256 and is expected to
be Rs. 312 crores in 2008-09. Whereas expenditure on Stores & spares and Repairs &
Maintenance has changed from Rs. 27 crores and Rs. 36 Crores in 2002-03 to Rs. 24 crores and
Rs. 58 Crores in 2007-08 respectively. It is Rs. 21 crores and Rs. 62 crores in 2008-09. Salaries
have increased from less than Rs. 70 crores in 1999-00 to Rs. 190 crores in 2008-09.
During 2005-06 all expenses were higher corresponding to previous year due to higher volumes
of RLNG, hike in gas prices and adjustment done for Gas Pool account for year 2004-05. In
2006-07 expenditure was Rs. 11897 crores whereas other operating expenses were Rs. 425
crores.
The major reasons for the same were increased raw material cost, increased fuel cost due to
higher Gas Prices and low gas transmission.
38
During 2008-09 it is 44% higher than corresponding previous year, due to gas prices and
transmission tariffs.
PAT for Natural gas has increased from less than Rs. 1300 crores in 1999-00 to Rs. 1916 crores
in 2008-09, registering a CAGR of 6%. On the other hand Gross Margin has increased from less
than Rs. 1700 crores in 1999-00 to Rs 2195 in 2008-09, registering a CAGR of 4%.
PAT for 2005-06 registered highest growth of 19% over previous year, due to higher sales
volume, decrease in pipeline depreciation rate from 10.34% to 3.17% and decrease in interest
payments. Gross margin from for the same year was Rs. 2023 crores in comparison to Rs. 2068
crores for previous year.
During 2006-07 PAT decreased to Rs. 1629 crores from Rs. 1703 crores in previous year, due to
decrease in Gas Transmission on account of flood in Gujrat. Gross margin for the same year
from Natural Gas transmission registered a dip of 10% in comparision to previous year, where as
for Natural Gas trading it increased from Rs. 61 crores to Rs. 181 crores in comparison to
previous year.
During 2007-08 PAT from Natural Gas transmission was Rs. 1513 crores and from Natural gas
trading was Rs. 207 crores. Gross Margin for the same year was Rs. 1808 crores for Natural Gas
transmission primarily due to increase in Gas transmission quantity and Rs. 207 crores for Gas
Trading.
LPG & LHC
39
LPG & LHC are one of the leading segments of GAIL (India Limited. During 1999-00 the sales
volumes for LPG was 756 TMT, where as Pentane, Propane and SBP was 17 TMT, 65 TMT and
41 TMT, it is increased to 1092 TMT for LPG, 58 TMT for Pentane, 153 TMT for Propane and
101 TMT for SBP in 2008-09, registering a CAGR of 4.1%, 14.7%,9.9% and 10.4%. It is
expected to be 1137 TMT for LPG, 67 TMT for Pentane, 168 TMT for Propane and 112 TMT
for SBP by 2009-10. Over the years sales volume for LPG is growing but with a decreasing rate,
because it is a government regulated segment and company has to bear large amount of subsidies
in this segment and hence company is not making any major investment in same.
During 2002-03 there was large increment in sales vilume of LPG and Propane i.e. by 12% and
37% over previous year and in 2003-04 in sales volume of SBP and Pentane i.e. by 89% and
55% due to interplay of demand and profit margin among LHC products.
During 2005-06 sales volume of LPG was low as compared to previous year primarily because
of fall in production due to shutdown of USAR plant from 25/05/2005 to 27/08/2005 as there
was a fire in ONGC offshore platform and lower production in Vijaipur plant due to lower
butane content after mixing of RLNG. During 2007-08, there was expansion in sales volume of
all the LHC products except Propane due to expansion of capacity at PATA plant.
Prices of LPG and LHC also changed during last 10 years. LPG whose average price was less
than Rs. 14000/MT in 1999-00 has increased to Rs. 33176/MT in 2008-09. Whereas in 2009-10
it should be around Rs. 33491/MT. Prices of Pentane, Propane and SBP has also increased from
less than Rs. 15000/MT each in 1999 to Rs. 30537/MT, Rs. 36495/MT and Rs. 34056
respectively in2008-09. As per estimation it should be around Rs. 26500/MT, Rs. 33338/MT and
Rs. 32090/MT in 2009-10.
40
Revenue for LPG & LHC has increased from less than Rs. 1400 crores in 1999-00 to Rs. 3020
crores in 2008-09, registering a CAGR of 11%. During 2003-04 it was 42% higher than
corresponding previous year due to higher sales volumes of SBP and Pentane and higher prices.
During 2005-06 Revenue from LPG and other LHC was 20% higher than corresponding
previous year due to higher prices. The revenue for 2006-07 decreased from Rs. 2062 crores to
Rs. 1984 crores registering a dip of 4% and it was primarily due to increase in sales quantity &
average sale price and increase eof LPG subsidy by Rs. 424 crores. During 2007-08 revenue
increased to Rs. 2641 crores registering a growth of 33% over previous year, due to increase in
average sale price and lower LPG subsidy. In 2008-09 it is expected to be Rs. 3692 crores higher
sales prices and lower LPG subsidy by Rs. 314 crores.
Expenditure for LPG & LHC has increased from less than Rs. 800 crores in 1999-00 to Rs. 1824
crores in 2007-08, registering a CAGR of 19% and is expected to be Rs. 2073 crores in 2008-09.
It was highest in 2003-04 in comparison to previous year i.e. growth of 42% due to higher prices
and higher volumes. In 2005-06 it was Rs. 1520 crores in comparison to Rs. 1148 crores of
previous year, instead of decline in operating expense from Rs. 495 crores to Rs. 436 crores.
During 2006-07 it was Rs. 1928 crores 32% higher than previous year because during that year
Gas from ONGC and PMT which was cheaper than other sources was not available and
company had to use SPOT LNG. Where as in 2007-08, it was Rs. 1824 crores because of
availability of PMT Gas and in 2008-09 is Rs. 2072 crores because of higher raw material cost
and other operating expenses.
Expenditure on Power and Fuel accounts for major part of the total operating expenses incurred
during the year. In 2002-03 expenditure on Power & Fuel was Rs. 83 crores, it increased to Rs.
218 crores in 2007-08 and is Rs. 241 in 2008-09. Salary and Wages has increased from less than
Rs. 30 crores in 1999-00 to Rs. 48 crores in 2007-08 and is Rs. 90 crores in 2008-09.
PAT has increased from less than Rs. 600 crores in 1999-00 to Rs. 857 crores in 2008-09,
registering a CAGR of 4%. Whereas Gross margin has increased from less than Rs. 700 crores to
Rs. 992 crores in 2007-08 and is Rs. 947 crores in 2008-09, registering a CAGR of 4%.
41
During 2004-05 and 2006-07, there was a sharp fall in PAT and Gross Margin in comparision to
corresponding previous year due to large burden of subsidy i.e. of Rs. 1137 crores in 2004-05
and Rs. 1488 crores in 2006-07.
In 2007-08 company’s PAT witnessed a huge jump over previous year i.e. from Rs. 93 crores to
Rs. 896 crores because of increasing in average LPG prices from Rs. 25185/MT to Rs.
30717/MT, Pentane from Rs. 28708/MT to Rs. 31948/MT, Propane from Rs. 27862/MT to Rs.
34656/MT, decrease in subsidy by Rs. 174 crores and increase in average sales volume.
In 2008-09 it dips to Rs. 857 crores, the major reasons for this is higher LPG subsidy i.e. Rs.
1781 crores.
Petrochemicals
42
Sales volumes of Petrochemical products have increased from 119 TMT in 1999-00 to 422 TMT
in 2008-09, registering a growth of 15%. It is expected to be 486 TMT in 2009-10. During 2000-
01 it registered a growth of 64% because of increment in plant production capacity made during
the year from 2,60,000 TPA to 3,10,000 TPA. It resulted in increase in sales volume by 56 TMT
for the following year also. In 2005-06 there was a fire accident in LLDPE plant during MAY
2005 due to which production was affected. During 2006-07 sales volume was 354 TMT in
comparision to 311 TMT of previous year i.e. growth of 14%, due to mechanical completion of
new HDPE plant with capacity of 1,00,000 TPA at the Petrochemical Complex at PATA. In
2007-08 capacity of the plant further increased to 4,10,000 TPA resulted in 9% growth in sales
volume in comparison to corresponding previous year.
Average price of Petrochemical Products has increased from less than Rs. 38000/MT in 1999-00
to Rs. 76546 in 2008-09. Where as per estimations made, it should decrease to Rs. 60000/MT in
2009-10. During 2003-04 it increased to Rs. 54775/MT from 41075/MT, registering a growth of
33%, whereas in 2006-07, it registered a growth of 25% i.e. from Rs. 50909/MT in 2005-06 to
Rs. 63959 in 2006-07.
Revenues from Petrochemical Products has increased from less than Rs. 1600 crores in 1999-00
to Rs. 2811 crores in 2008-09, registering a CAGR of 8.5%. During 2003-04, it had witnessed a
dip of 24% because of fall in volume due to maintenance and overhauling of petrochemical plant
at PATA.
Whereas in 2004-05 it was Rs. 1801 crores, registering a growth of 41% in comparison to
previous year, primarily due to increment in average sales quantity and prices. Petrochemicals
revenue in 2005-06 was 8% higher than corresponding previous year, due to higher prices. Fire
accident in LLDPE plant, annual shutdown in month of July 2005 and shutdown in month of
November 2005 were the major reason for slow growth in sales volume. In 2006-7 it was Rs.
2608 crores in comparison to Rs. 1952 crores for 2005-06, registering a growth rate of 33% due
to increase in average sales quantity and price. It increased to Rs. 2997 crores in 2007-08.
43
Expenditure on Petrochemicals products has increased from less than Rs. 900 crores in 1999-00
to Rs. 1442 crores in 2008-09, registering a CAGR of 5%. During 2003-04 it dipped by 20% due
to fall in sales volume. Whereas in 2004-05 and 2005-06 it was Rs. 871 crores and Rs. 1101
crores because of increased operating expenses and higher raw material cost. It showed highest
growth during 2006-07 in comparison to previous year due to higher raw material cost and
increase in sales volumes.
In this segment Expenditure on Stores and Spares account for major part of the operating
expenses incurred during the year. Whereas in other segment Power and Fuel accounts for the
major part. Consumption of stores and spares which was less than Rs. 100 crores in 1999-00 has
increased to Rs. 156 crores in 2008-09, due to increase in average sales quantity and prices of
spares. Salary and wages has increased to Rs. 123 crores in 2008-09 which was less than Rs. 40
crores in 1999-00.
PAT for the Petrochemicals has increased from less than Rs. 450 crores in 1999-00 to Rs. 1214
crores in 2008-09, registering a CAGR of 15%. Where as Gross Margin has increased from less
than Rs. 700 crores in 1999-00 to Rs. 1370 in 2008-09, registering a CAGR 11.3%.
PAT and Gross Margin for 2003-04 were low in comparision to the same for corresponding
previous year due to low sales volumes. Where as in 2004-05 PAT was Rs. 786 crores and Gross
Margin was Rs. 931 crores i.e. growth of 60% and 169% over previous year deu to higher sales
volume and higher sales prices.
During 2005-06 PAT and Gross Margin was low in comparison to previous year because of high
Raw material cost and other Operating expenses. In 2006-07 PAT increased to Rs. 951 crores,
registering a growth of 34% over previous year and gross margin was Rs. 1097 crores 29%
higher than previous year. In 2007-08 PAT was Rs. 1255 crores mainly on account of higher
sales quantity and higher sales price , due to rupee appreciation in 2008-09 it declined to Rs.
1214 crores because of low sales volumes.
LPG Transmission
44
Volumes of LPG Transmitted have increased from 1,000 TMT in 2000-01 to 2,744 TMT in
2008-09, registering a CAGR of 15%. It is estimated to be 3,097 TMT in 2009-10. During 2003-
04, it registered a growth of 20% in comparision to previous year due to completion of Vizag -
Secunderabad LPG Pipeline, the 580 KM pipeline with a maximum throughput of 1.16
MMPTPA in June 2003. During 2005-06, it increased to 2,229 TMT mainly on account of
increase in volumes transmitted through Vizag – Secunderabad LPG Pipeline instead of lower
transportation thorugh JLPL due to Reliance Jamnagar Plant shutdown during Oct-Nov 2005 for
45 days. Volumes transmitted through VSPL have increased from 131 TMT to 522 TMT in
2007-08 and is expected to be 576 TMT in 2007-08. As per budgeted estimation it should be
around 592 TMT in 2009-10
Transmission tariff has also increased for JLPL and VSPL by 2% every year. In 2000-01 for
JLPL it was Rs. 1.27/MT/Km, whereas for VSPL when it started in 2003-04 was Rs.
1.39/MT/Km. In 2007-08 it was Rs. 1.46/MT/Km and Rs. 1.51/MT/Km, it is estimated to Rs
1/MT/Km and Rs. 2/MT.Km in 2008-09.
Its revenue has increased from less than Rs. 200 crores in 2000-01 to Rs. 384 crores in 2008-09,
registering a CAGR of 10%. It has registered highest growth during 2003-04 i.e. 24% due to
introduction of Vizag – Secunderabad LPG Pipeline. In 2004-05 it was Rs. 302 crores,
registering a growth of 13% over previous year. Revenue for 2005-06 was 2% higher than
corresponding previous year due to lower transportation in JLPL because of shutdown of
Reliance Jamnagar plant for 45 days. During 2006-07 and 2007-08 it registered a growth of 11%
and 13% over previous year, because of increase in volumes transmitted.
Total operating expenditure incurred during the year on LPG pipelines is very low in comparison
to other segments, because it does not require any raw material for any type of production,
whereas major part of the total operating expense is incurred on maintaince of the pipeline.
Expenditure incurred on LPG transmission has also increased from Rs. 40-45 crores to Rs. 93
crores in year ending March 2008-09. During 2004-05 it increase in transmission volumes. In
45
2005-06 and 2006-07 it was Rs. 81 crores and Rs. 84 crores, registering a growth of 12% and 4%
over the previous year.
Power and Fuel which accounts for major part pof the operating expenses has increased from
less than Rs. 15 crores in 1999-00 to Rs. 21 crores in 2008-09. Where as salary and wages has
increased from less than Rs. 10 crores in 1999-00 to Rs. 40 crores in 2008-09 due to revision in
wages and salary structure.
PAT from LPG Transmission has increased from less than Rs. 9 crores in 2000-01 to Rs. 197
crores in 2008-09, registering a CAGR of 64%. Whereas Gross Margin has increased from less
than Rs. 47 crores in 2000-01 to Rs. 290 crores in 2008-09, registering a CAGR of 10%. During
initial years 2000-01 to 2004-05 it was low due to large amount of Depreciation and Interest
charges. In 2004-05 depreciation charged was Rs. 140 crores because of additional depreciation
on new Vizag – Secunderabad charged was Rs. 140 crores because of additional deprecation on
new Vizag – Secunderabad LPG Pipeline.
In 2005-06 PAT increased to Rs. 131 crores, registering a growth of 126% over previous year
due to change in depreciation policy w.e.f. 01/04/2005 from 10.34% to 3.17%. In 2006-07 it
increased to Rs. 164 crores due to increase in transmission volumes, on the other hand Gross
margin increased to 260 crores, registering a growth of 14% over previous year. In 2007-08 PAT
and Gross Margin was Rs. 207 crores and Rs. 300 crores. In 2008-09 it was low in comparison to
2007-08 because of low transmission volumes.
6.3 Ratio Analysis
46
Ratios are the best tool for measuring liquidity, solvency, profitability and management
efficiency of the company. In this analysis time dimension has been taken into consideration,
which will help in understanding the performance of the company over a period of time, whether
it is improving or not and will also throw light upon the efficiency of the management and
degree of utilization by the business.
Liquidity/ Current Ratio
It indicates the firm’s ability to pay its current liabilities out of its current assets. A current ratio
of 2:1 has been considered adequate but it may not be applicable to all the companies since other
factors that affect the working capital are also to be considered. The idea of having almost twice
as much assets as liability is only to tide over the contingency loss on account of realization of
assets in order to meet liabilities and leave some amount as working capital of realization of
assets in order to meet liability and leave some amount as working capital in the business. In case
of GAIL (India) Ltd. it was 1:1 in 1999-00 which means that the current creditors were financing
the day to day operations in entirety. And any loss of current assets would mean loss to current
creditors. While on positive side it means less idle and inefficient funds. It has increased to 1.5:1
in 2008-09 and is expected to be 1.6:1 in 2009-10.
47
As the portfolio of the company has been diversifying towards different segments, its
requirement for short term funds is also increasing to meet short term liabilities. Hence Current
ratio of the company is also increasing; it was highest in 2004-05 i.e. 1.8:1. It shows that
company is making its best efforts to improve its short term solvency position.
Long Term Solvency/Debt Equity Ratio
It determines the soundness of the long term financial policies of the company and also measures
the relative investment proportions of outsider’s fund and shareholder’s fund in the company. In
of GAIL (India) Ltd. it was 0.5 in 1999-00 which indicates 1 rupees of debt against 2 rupee of
equity in the capital structure of the company. It changed to 0.3 in 2002-03 and went on
decresing thereafter because of repayment of borrowed funds. It had fallen to 0.1 in 2007-08 and
is 0.8 in 2008-09, whereas it is prevailing at 1.5-2 approximately in the industry. A low ratio is
favorable from creditor’s point of view as it signifies about the solvency of the business. While
on negative side low proportion indicates a conservative capital structure. A higher ratio would
reduce tax payment on the part of company as it has to bear interest expense which are deducted
from the profits.
48
So there is still scope for arranging long term loans for further expansion of the business
provided profitable activities can be carried on. As new gases have been introduced into the
market like Reliance KG basin Gas, it would call for further investments which would require
large capital expenditure on the part of company. Hence it would have to resort to long term
loans or long term debts to finance its future projects. It has been projected that it would require
Rs. 15000 crores in next 3-4 years to finance its new projects.
Profitability Ratios
It is the most widely used measures of company performance. It links the profit and investment
required to generate them. It tells about the managerial effectiveness and level of profitability of
the business.
Return on Capital Employed
It measures the ability of the firm to reward providers of long tern funds. It was 18% in 1999-00
which has increased to 33% in 2008-09. It shows that efficiency of the company in utilizing the
total capital employed in the business has increased from 18% to 33% with in a small span. It has
been witnessing an increasing trend because of static equity capital and low debts into the capital
49
structure of the company. It is projected to be 32% in 2009-10. It would help in attracting future
providers of capital.
Return on Equity
It focuses on the efficiency of the company in earning profit on behalf of its equity shareholders,
by relating the profits to the total amount of equity shareholders fund employed in the company.
In case of GAIL (India) Ltd. it was 15% in 1999-00 which has increased to 19% in 2008-09. It
signifies prosperity and growth in the profitability of the company. It was 25% in 2003-04
because of high profits for the shareholders and large increment in reserve and surplus of the
company in comparision to previous year i.e. 54% and 20%. However it started decreasing from
2004-05 till 2007-08 because of higher increment in Reserve and surplus in comparison to PAT
of the company. While in 2009-10 it is projected to be 17% because of increase in share capital
of the company on account of bonus share issue made by company in 2008-09.
Earnings per share
50
It acts as a value anchor to form opinion about over/under pricing. It has increased from Rs.
10.18 in 1999-00 to Rs. 30.76 in 2007-08 it falls to Rs. 22.28 because of increase in number of
shares due to bonus issue made by the company. It shows that earning power of the company has
increased over the years/ it is affected by the number of shares issued by the company, which had
been static at 8,45,651,600 shares since last decade, now increased to 126,84,77,400 reflecting an
increase in earning of the company over the year in spite of increase in number of shares.
PBT to Capital Employed
It shows the ability of the company in providing return on the total capital employed. It has
increased from 15% in 1999-00 to 32% in 2008-09, which signifies continuous improvement
51
over the year because of increment in profits of the company. In 2004-05 it dipped by 4% due to
increase in current assets in comparison to previous year. While in 2006-07 it dipped by 2%
because of fall in PBT against previous year. It is projected to be 31.6% in 2009-10.
PBT to Net Worth
It shows the ability of the company in providing returns before tax on the equity funds employed
in the business. It has increased from 18% in 1999-00 to 28% in 2008-09. However in 2004-05
and 2006-07, it dipped by 5% and 8% because in reserve and surplus by 18% and 15%. It
expected to be 28% in 2009-10.
PBT to Net Sales
It shows the profit earned by the company in respect of Net sales for the year. It has increased
from 11% in 1999-00 to 21% in 2007-08, because of increase in profits of the company. It has
52
declined to 18% in 2008-09 because of increase in Net sales on account of increase in currency
exchange rate and is expected to remain same in 2009-10.
PBT to Gross Fixed Assets
It shows the profitability of the company in respect of Gross fixed assets. It was 10% in 1999-00
and has increased to 24% in 2008-09. It is projected to increase to 22% in 2009-10. It was dip by
4% in 2006-07 because of fall in PBT in comparison to previous year.
Dividend Payout Ratio
53
This ratio measures what a company pays out to its investors in the form of dividend. This is the
ratio between earnings and dividends. A shareholder looking for a quick returns looks for
companies whose dividend payout ratio is high and investors for capital appreciation look for
companies whose payout is low. In case of GAIL (India) Ltd. it was 32% in 1999-00 which has
increased to 38% in 2007-08 on account of increase in dividend per share from Rs. 3 to Rs. 10. It
reflects the liberal policy of the company as the central government has fixed a minimum
benchmark of 30%. There was an increase of 3% in 2005-06 as compared to previous year
because of increase in dividend per share by 25% i.e. from Rs. 8 to Rs. 10. In 2008-09 it reduced
to 31% because of decrease in dividend by 30% as compared to previous year. It is projected to
be around 37% in 2009-10.
Others
Net worth per Rupee of Equity Capital
It describes the number of times value of one Rupee of Equity Capital has increased over the
years. It has increased from 5.5 times in 1999-00 to 12 times in 2008-09. It signifies that value of
one rupee which was Rs. 5.58 in 1999-00 has increased to Rs. 12 in 2008-09. It is projected to
increase further to 13 times in 2009-10 becaouse of increase in share capital of the company on
account of Bonus issue made during the year 2008-09.
54
Price Earning Ratio
P/E ratio is one of the financial indicators to understand the financial condition of an
organization. It is unique as it takes consideration the market price of shares. It relates actual
current market price of a stock to its earning during a financial period. It has increased from 55.8
in 1999-00 to 13 in 2007-08. It is varying considerably over time; it indicates that market price is
not moving according to company’s actual performance. There are other factors directing the
market price of shares. It was lowest in 2002-03 i.e. 3.87 it indicates that investors have to pay
Rs. 5.80 more in comparison to previous year for every rupee of earning. It increased to 13.81 in
2007-08, while in 2008-09 it falls to 10.72.
6.4 Comparative Financial Analysis

55
Gail is one of the players in the field of Oil and Natural Gas in India. There are several other
player’s present in this field , four major players namely Reliance Industries Ltd., Oil & Natural
Gas Corporation Ltd., Hindustan Petroleum Corporation Ltd. and Indian Oil Corporation Ltd.
have been taken for the purpose of Comparative financial analysis of last 3 Years from 2006-07
onwards.
2006-07
On the basis of assessment of Balance sheet and Profit & Loss statement for 2006-07 of the
respective companies, IOCL had the highest revenue of Rs. 1845 billions because of its presence
into various field like export/R&P consultancy, Exploration and Prodcution international trade
and shipping etc it indicates that company has better potential for future growth, While Reliance
follows it with a Revenue of 1117 billions, with total exports of Rs. 653 billions. In the same
year HPCL, ONGC and GAIL registed revenue of Rs. 885 billions, Rs 823 billions and Rs. 160
billions respectively.
PAT & EBIT
56
In spite of low revenue ONGC had registered highest EBIT in 2006-07 i.e. of Rs 242 billions in
comparision to others, Reliance follows it with EBIT of Rs. 152 billions because of increase in
its Oil and Petrochemical production over previous year. While that of IOC and GAIL was Rs.
134 billions and 30 billions. HPCL registered lowest EBIT of 26 billions. GAIL’s Performance
has shown consistent improvement over the year in financial terms, but still in comparision to
others it is a small player. PAT of the companies is also showing the same trend. ONGC has
registered highest PAT of Rs. 178 billions, while Reliance industries Ltd, IOC, GAIL and HPCL
follow it with PAT of Rs. 119 billions, Rs. 119 billions, Rs. 24 billions and Rs. 17 billions
respectively.
EPS was highest for ONGC and Reliance India Ltd. i.e. Rs. 82 which indicates that both of them
had equal earning power in comparison to others and their market capitalization was also
57
witnessing an increasing trend. While that of IOC and HPCL was Rs. 66 and Rs. 49. Gail
registered lowest EPS of Rs. 28.
ROE indicates the return available on the amount invested by the shareholders. ROE for ONGC
was the highest at 29%. While IOC, GAIL (India) ltd. and Reliance follow it with 22%, 21% and
19% respectively. It incdicates that ONGC was able to provide maximum return to the
shareholders than its counterparts. HPCL had registered itself with lowest returns of 18% on
equity.
Debt Equity ratio was highest for HPCL that is 1.09 times it indicates that company’s total debt
was 1.09 times of the total equity employed in capital structure of the company. While in case of
IC, Reliance and GAIL(India) Ltd. it was 0.81 times, 0.36 times and 0.12 times respectively.
58
The prevailing debt-equity ratio in the industry is 1.5-2. However in case of all the companies
mentioned above the same was much lower in comparison to prevailing ratio rate in the industry.
It indicates that they could could raise additional funds to finance future profitable projects.
While in case of ONGC it was zero, representing very low or no debt into the capital structure of
the company. It could raise additional funds to finance future projects as well as to save tax for
profitable ventures.
Return on capital employed measures the ability of the firm to reward providers of long term
funds. It was highest in case of GAIL that is 28%, which indicates the ability of the company to
attract future investors to invest into the company. In case of ONGC and HPCL it was 26% each.
While in case of Reliance and IOC it was 17% and 14% respectively.
2007-08
59
In 2007-08 IOC registered highest revenue of Rs.2073 billions. Reliance revenue has also
increased by Rs. 217 billions in comparision to last year. While that of HPCL and ONGC was
Rs. 1020 billions and Rs. 968 billions respectively, registering a growth of 15% and 18%. GAIL
had registered lowest revenue i.e. of Rs. 180 billions, a growth of 12.5% over previous year.
In spite of low revenue again in 2007-08 ONGC had registered highest EBIT that is Rs. 275
billions. In case of Reliance and IOC it increased to Rs. 185 billions and Rs. 143 billions. GAIL
has registered EBIT of Rs. 39 billions, representing a highest growth rate of 30% over previous
year in comparison to other counterparts. While that of HPCL dipped by 15% in comparison to
corresponding previous year. PAT for the ONGC was Rs. 199 billions which is highest among
60
all. In case of Reliance it was Rs. 153 billions registering a highest growth rate of 29% over
previous year in comparison to others. GAIL and IOC registered a marginal growth of Rs. 2
billions and Rs. 3 billions respectively in comparison to corresponding previous year. While that
of HPCL dipped by 18% in comparison to corresponding previous years.
EPS for all companies increased over previous year with exception to IOC and HPCL. It was
highest for Reliance, indicating ability of the company to earn Rs. 105 on the face value of each
share of the company. While that of ONGC, IOC and GAIL was Rs. 93, Rs. 66 and Rs. 30
respectively. It dipped to Rs. 40 in case of HPCL.
61
Return on Equity witnessed the same trend as it was in previous year. It was highest in case of
ONGC providing highest returns to the euity shareholders of the company. In case of Reliance it
was 18%, while that of GAIL and IOC it was 20% each. In case of HPCL it dipped to 13%.
62
Debt- Equity was highest for HPCL i.e. 1.59 times it indicates that company’s total debt was
1.59 times of the total equity employed in capital structure of the company. It would reduced the
solvency of the company and confidence of the creditors, as the entire earnings would go out
from the company in the form of interest payment leaving a very less or no amount for future
investments. It case of reliance and IOC it was 0.89 times and 0.30 times, while that of GAIL
and ONGC it was 0.10 times for each. On the other hand where it is falling in GAIL, on the other
hand it is increasing in ONGC because of deseriabilty of the company to utlize the available
external resources
Return on capital employed was highest in case of GAIL (India) ltd. that i.e. 29%, it indicates
higher returns on the capital employed by the long term investors into the company. In case of
Reliance it was 21%. While in case of ONGC, IOC and HPCL it dipped by 2%, 3% and 14%.
63
2008-09
In 2008-09 IOC has registered highest revenue of Rs. 2441 billions. Reliance follows it with Rs.
1463 billions, registering a growth of 10% over previous year. While in case of HPCL, ONGC
and GAIL it is Rs. 1137 billions, Rs. 1036 billions and Rs. 243 billions respectively. GAIL has
registered highest growth in its revenue i.e. of 35% in comparision to previous year.
PAT & EBIT
64
In 2008-09 also ONGC has registered highest EBIT of Rs. 279 billions in comparision to others.
Reliance follows it with Rs. 204 billions. While in case of GAIL and HPCL it is Rs. 41 billions
and Rs. 31 billions. HPCL has registered highest growth of 41% in comparision to previous year;
While IOC’s EBIT has shown a dip of 44% for ONGC dip by Rs. 1 billions over previous year.
In case of Reliance, GAIL and IOC it is Rs. 153 billions, Rs. 28 billions, and Rs. 24 billions
respectively. While in case of HPCL it dipped to Rs. 8 billions
In 2008-09 EPS is highest for ONGC by Rs. 2 as compared to Reliance for last year. It has
registered a growth of 15% over previous year. In case of Reliance it has dipped by Rs. 4. In case
of GAIL I increased to Rs. 30, while for IOC and HPCL it has dipped to Rs. 21 and Rs. 22.
65
Return on Equity is also highest for ONGC in comparision to others i.e. 27% representing
profitable venture for investors to invest in the equity of the company. Reliance and GAIL
follows it will 21% and 18%. In case of IOC and HPCL it has fallen to 5% and 7%, indicating
low earrings available with the company for shareholders because of large amount of funds
raised by the company in the form of debts.
Debt Equity ratio of ONGC which was lowest in previous year in comparision to others has
grown to 0.15 in 2008-09 becaouse of their plans to merge with Imperial energy Ltd. while in
2008-09 it is lowest for GAIL i.e. 0.08 times. In case of Reliance and ONGC it is 0.24 times and
0.92 times. It is 1.63 in case of HPCL because of higher debts in the company.
66
Return on Capital Employed of ONGC is the highest among the other companies at 33%. GAIL
which had the highest return on capital employed in the previous year follows it at 32%. In case
of HPCL and Reliance the return on capital employed is 27% and 20% respectively. Whereas the
Return on capital employed of IOC is 4%
67
CONCLUSIONS
 Sales of the company have almost tripled during last decade i.e. from the level of Rs.
7500 crores to the level of Rs. 24000 crores, registering a CAGR of 13.5%. It reflects
consistent growth in size of the company.
 Gross Margin of the company has grown almost three fold registering a CAGR of around
13.5% over a decade. It has increased from around Rs. 1500 crores in 1999-00 to the
level of Rs. 4800 crores in 2008-09, indicating improvement in the profitability of the
company. However, during 2nd half of 2008-09 it has declined for all the segments except
Natural Gas, due to economic meltdown and declined in key polymer and LPG prices.
Had LPG been not there it has been around Rs. 6600 crores for 2008-09 with a CAGR of
around 17%.
 PBT of the company has omncreased to almost five times over a decade mainly on
account of increment in PBT from Gas Trading and Transmission. In 2008-09 it has
increased to the level of Rs. 4200 crores from the level of Rs. 1999-00 mainly because of
increments in PBT from Gas segment. Had LPG subsidy been not there CAGR of PBT
has been around 24% which is presently 19%.
 Segment wise performance of the company has also showed consistent growth over the
years. Natural Gas and LPG were the major contributors of PBT during 1999-00 with a
share of around 50% and 25% respectively, their share has declined to 46% and 20% in
2008-09, though they have been increased in absolute terms. Whereas share of
Petrochemicals has increased from less than 20% to 29% with in a span of 10 years. LPG
68
pipelines whose share was almost nil in 2001-02 has increased to 5% in 2008-09.Growth
in share of new segments has led to a fall in the proportions of existing segments.
 In 1999-00 expenditure under the head “Other” was around 57% of the total expenditure,
it has come down to the level of 28% in last 3 years because of cost cutting measures
adopted by the company. It indicates improvement in overall operational efficiency of the
company.
 LPG Subsidies have almost grown to four fold over last few years because of under
recoveries of Oil marketing companies making LPG as an unattractive segment for future
investments.
 On an average company’s Return on capital employed is maintained at above satisfactory

level. It has almost doubled from 18% to 33% in 2008-09 with in a decade. It indicates an
improvement in managerial efficiency of the company.
 There has been a consistent improvement in Current ratio of the company indicating
improvement in the liquidity position of the company. Thought it is increasing i.e. 1.5 in
2008-09 but still it is lower than the industry standard i.e. 2:1
 Debt-Equity ratio has been decreasing over the years indicating more dependence on
internal funds. It has declined from 0.5 in 1999-00 to 0.08 in 2008-09 while in standard
ratio in industry is 1.5-2
69
 Earning power of the company has almost tripled over a decade from Rs. 10 to Rs. 31 in
2007-08. However in 2008-09 it has fallen to Rs. 22 because of increase in share capital
of the company an account of Bonus issue made during the same year.
 Net worth per rupee of equity capital has almost doubled from 5.5 times to 12 times,
signifying the increase in value of shareholder’s stake in the business. However it has
declined from 15 to 12 times in 2008-09 as compared to previous year due to equity
expansion during the same year.
 Though Gail has monopoly in the field of Gas Transmission, with the small presence in
Petrochemicals and E&P segment but still it is a small player in comparison to other
player like Reliance and ONGC. Owning to low Debt-Equity ratio it has ample scope to
grow exponentially
70
RECOMMENDATIONS
On the basis of analysis and observationdone, some of the recommendations are as follows:
 Company’s ability to meet its current obligations is satisfactory though do not meet the
industry standard. Its level of current assets is less than optimum level if increased it may
increase the working capital of the company and in turn may increase the scope of the
company to exploit future opportunities.
 There has hardly been any debt in the capital structure of the company. To fund its large
capital expenditure plans for Rs. 15000 crore in next 2-3 years, GAIL may have to resort
to large scale borrowing in future, which will not only help it in improving its cash
position but will also improve its financial health because increae in interest cost could
act as a tax shield. Low cost debt will be used to replace the high cost equity.
 Presently, the company is facing two-edge sword, as on one hand it purchase natural gas
at market driven prices for producing LPG and on the other hand it has to bear large
amount of subsidies because of under- recoveries of oil marketing companies. Company
may make efforts with the Govt. for discontinuation of LPG subsidies it has to bear.
71
 Generally Capital work in Progress and Investments made by the company during the
year are included while calculating Capital Employed, but in case of GAIL (India)
Limited it has not been taken into accounts. Inclusion of the same may increase Capital
Employed of the company that may form a case with the Regulator for fixation of higher
tariff.
 Tax payment made by the company has almost increased by eight times over a decade. It
was Rs. 170 crores in 1999-00 and has increased to Rs. 1400 crores in 2008-09. Company
may purse tax incentives scheme, which may act as a tax shield for the company.
72
APPENDICES
Glossary
GAS Industry specific terminologies
BCM Billion Cubic Meters
CBM Coal Bed Methane
CNG Compressed Natural Gas
DVPL Dahej- Vijaipur Pipeline
E&P Exploration and Production
HDPE High Density Polyethylene
HVJ Hajira vijaipur Jagdispur
JLPL Jamnagar Loni Pipeline
73
JVs Joint Ventures
KG basin Krishna Godavari Basin
LHC Liquid Hydrocarbons
LLDPE Linear Low Density Polyethylene
LNG Liquefied Petroleum Gas
MMT Metric Million Tonne
MMSCMD Metric Million standard Cubic Meters per Day
MMBTU Million British Thermal Unit
Mop & NG Ministry of Petrolelum and Natural gas
MoU Memorandum of Understanding
MSCM Million Standard Cubic Meters
MT Metric Tonne
NELP New Exploration and Licensing Policy
OECD Organization for Economic Cooperation and Development
PNG Piped Natural Gas
TMT Thousand Metric Tonnes
Financial Terms
BSE Bombay Stock Exchange
CAGR Compounded Annual Growth Rate
CAPEX Capital Expenditure
EPS Earnings per Share
NSE National Stock Exchange
74
PAT Profit after Tax
PBIT Profit before Interest and Tax
PBT Profit before Tax
REFRENCES
• National Stock Exchange of India. http://www.nse-india.com/
• Energy Information Administration, official energy statistics from U.S government

http://www.eia.doe.gov/
• GAIL (India) Limited . http://www.gailonline.com/
• Reliance Industries limited . http://www.ril.com/
• CRISIL Research. http://www.crisil.com/
• Infraline Energy, Research and Information Service. http://infraline.com/.
75
• CRISIL Research Report
• Ministry of heavy Industries and Public and Public Enterprises (2007-08). Petroleum
(Refinery and Marketing).
• Annual Report of Gail India ltd (2008-09).
Case Study
IMPACT OF APM GAS PRICE HIKE
The government has given national oil firms ONGC and OIL freedom to price any additional
natural gas produced from blocks given to them on nomination basis at market rates. So far, all
gas -- current and future -- produced from blocks given to Oil and Natural Gas Corporation and
Oil India Ltd was priced at government-controlled rates, called administered price mechanism.
The petroleum ministry, in an order dated May 31, has now made a distinction between existing
producing fields and new ones in the nomination blocks.
"ONGC and OIL would have the freedom to sell any production from new fields in their
nominated blocks at non-APM rates," the order said.
Even the price of APM gas from June 1 has been more than doubled to $4.2 per million British
thermal units, at par with the rate at which Reliance Industries sells gas from its eastern offshore
KG-D6 fields.
76
"It has been decided that the price of APM natural gas produced by national oil companies be
fixed at $4.2 per mmBtu less royalty.
"Hence, the APM price inclusive of royalty (to customers) would be $4.2 per mmBtu," the order
said.
APM gas prior to June 1 was sold at Rs 3,200 per thousand cubic metres or $1.79 per mmBtu.
For customers in the North-East, the net consumer price would be 60 per cent of the new rate,
i.e., $2.52 per mmBtu.
"The difference would be paid to ONGC and OIL through government budget." The government
has also made a significant departure from the previous practice of pricing natural gas in rupees
and has now decided to price it in dollars.
"The price (of $4.2 per mmBtu) would be converted to Indian rupees per thousand cubic metres
(mscm) at the Reserve Bank of India reference exchange rate of the month previous to the month
during which supply of APM gas is made.
The price in rupees per mscm would be adjusted every month on the basis of RBI reference
exchange rate," the order said.
This rate would be excluding cess, transportation charge, marketing margin/service charge and
taxes.
"As regards existing producing fields, the production of ONGC and OIL from these, including
any additional production, would be considered as APM gas and sold at APM rate," the order
said.
The order said the government has also decided that company marketing the APM gas, GAIL
India Ltd, has been allowed to charge a marketing margin of Rs 200 per mscm.
"The sale of APM and non-APM gas produced from nominated blocks would be in accordance
with government's decisions regarding commercial utilisation of gas," the order said.
77
In case of reduction in availability of APM gas, supplies to customers would be reduced on a
pro-rata basis.
To meet the deficit in supply of APM gas, GAIL and other oil marketing companies marketing
non-APM natural gas would supply non-APM gas, subject to availability and connectivity, to
connected APM customers on priority, provided they are willing to pay the higher non-APM
price, it added.
The Cabinet had last month approved the raising of gas price from Rs 3,200 per thousand cubic
metres ($1.79 per million British thermal units) to Rs 6,818 per thousand cubic metres ($3.818
per mmBtu).
After adding royalty, the price for user industries would be Rs 7,500 per thousand cubic metres
(Rs 7.5 per cubic metre) or $4.2 per mmBtu.
The hike in gas price would also lead to a rise in the cost of fertiliser production and power
generation.
However, fertiliser prices will not increase as the government subsidises the sector.
The increase in power tariffs would be marginal as only 11 per cent of the total electricity
generated in the country comes from gas-based power projects.
And, of these, only one-third use the gas with the increased price tag. ONGC and OIL would
gain about Rs 5,000 crore (Rs 50 billion) and Rs 700 crore (Rs 7 billion) in revenue respectively
because of the gas price increase.
GAIL India, which has been allowed to charge Rs 200 per thousand cubic metres or 11.2 cents
per mmBtu as marketing margin, would gain Rs 150-200 crore (Rs 1.5-2 billion) in revenue
annually.
78
State-run ONGC and OIL produce 54.32 million cubic metres of gas per day -- about 40 per cent
of the total amount originating from the country -- through fields given to them on a nomination
basis
Gas price hike positive for ONGC, OIL; negative for IGL: Ambit
The cabinet has approved APM gas prices increase produced by state-owned Oil and Natural Gas
Corporation (ONGC) and Oil India (OIL) from USD 1.9/mmbtu to USD 4.2/mmbtu (adjusted for
royalty. This price is said to be valid up to March 2014 and are expected to be effective April
2010.
Ambit Capital, a leading broking firm said the new gas policy is a potential game changer for
the oil and gas sector in terms of government intent for deregulation. It said the move is positive
for ONGC and OIL but negative for Indraprastha Gas (IGL).
Impact: While an APM gas price hike was on the cards, the quantum has taken it by surprise.
The broking firm was expecting a gas price increase of 30% and 20% in FY11E and FY12E
respectively. The increase, however, is in line with the finance ministry`s stance of bringing
APM gas price in parity with KG gas price at one go.
Companies impacted:
> ONGC – Positive Impact
For ONGC, at current market price (CMP) of Rs 1020, it upgrades its rating to `Buy` with a
target price of Rs 1170 from `Hold`. ONGC currently supplies ~19-20bcm of APM gas at ~USD
1.9/mmbtu. The price hike to USD 4.2/mmbtu would result in an incremental PBT and PAT of
Rs 58 billion and Rs 39 billion respectively, implying an increase of 21% (based on FY10E
estimates). Given that it had factored in a gas price hike of 30%/20% in FY11E/FY12E, its
estimates are expected to increase by 14% and 8% respectively. Its TP would however move up
by 4%, from Rs1, 120 to Rs1, 170 as it had factored in a gas price of USD 4.2/mmbtu from
FY13E in calculation of our fair value.
79
> GAIL – Positive Impact
The decision of allowing marketing margin to GAIL would have a good impact on the
profitability of the company. It is expected the move will have a benefit of Rs. 340 crores on the
profit of the company
GAIL also uses gas for it petrochemical and LPG operations; however, as it was not procuring
APM gas, the company is not likely to be impacted by the gas Price
Impact of Increse in Gas price on GAIL’s FY 2012E financials
Particulars
APM gas Sales (BCM) 19.0
Marketing Margin (US$ mmbtu) 0.11
Revenue gain (US$ mn) 76.5
Exchange Rate (Rs/US$) 45.0
Incremental PBT (Rs cr) 344.4
Incremental PAT (Rs cr) 238.5
EPS Increase (Rs) 1.9
> Indraprastha Gas (IGL) – Negative Impact
The broking firm has recommended to `Hold` GAIL for a target price of Rs 215 as against CMP
of Rs 240. IGL sources ~85% of its gas supplies at APM rates (Rs 3.8/scm). This gas hike would
increase the company`s blended costs by 50% going forward. It notes that the company would
have to increase retail gas prices by Rs 3.2/scm (12%) in order to maintain its gross margins.
While it believes that company would be able to pass on the cost increase, an inability to do so
would impact adversely.
80
For OIL, the broking firm hasn`t provided any recommendation. Broking firm sets an
expectation that the next round could be auto fuels deregulation especially petrol. In its earlier
report it had built in a 30% hike in gas prices for FY11, 20% in FY12 and at USD 4.2/mmbtu
beyond FY14. Against its earlier earnings expectation of Rs 98 for FY11 and Rs 117 for FY12
its revised estimates are Rs 112 and Rs 127 respectively. This implies a 14% increase in FY11
and 8% FY12 earnings. Given the current market conditions this is a safe haven stock to buy into
the portfolio, it added.
Ambit has been positive on upstream and have a `Buy` on Reliance Industries and Cairn India. It
upgrades ONGC to `Buy`. The firm is cautious on oil marketing companies (OMCs) but it is
now getting a positive bias that auto fuel deregulation could be the next step especially in petrol.
It needs to see how the ministry handles the taxation impact but taking a clue from the policy
development it is positive on BPCL.
Impact on fiscal deficit - APM gas price hike: The APM gas price hike by itself has negligible
impact on the fiscal deficit. Given that the APM gas price hike is a pass-through for power
companies, higher fertilizer subsidies (Rs 500 billion) would be partially offset by lower power
subsidies.
However, as a signaling mechanism, in conjunction with the earlier fertilizer subsidy reforms
(nutrient-based subsidy regime), this would boost investor confidence in the government`s
commitment to go ahead with reforms in other areas including auto fuel deregulation. With the
impending EGoM meet in the first week of June likely to demonstrate the government`s stance
on auto fuel price deregulation, any reforms in the auto fuel space would act as the big kicker in
bringing down the fiscal deficit.
81
SYNOPSIS
FINANCIAL ANALYSIS OF GAIL (INDIA) LIMITED
Company Name –GAIL (INDIA) LIMITED.
Student Name – RAJAT NARANG
Industry Guide – C.A Subhir Purkayastha
Faculty Guide – Mrs. Navleen Kaur
This project Report is an attempt to analyze the financial of GAIL (India) Ltd. over a decade. In
this report efforts have been done to analyze the market scenario of different segment like
Natural Gas, Petrochemicals, LPG, and Exploration & Production in which company has marked
its presence and to project the future demand and supply at domestic and global level. As a
second step financial performance of the company is analyzed by performing Trend and Ratio
Analysis. Then, Segment wise performance of the company has been analyzed to determine the
contribution of each segment in the profitability of the company. At the final step, performance
of the company over last few years have been compared with other major players in the field of
Oil & Natural Gas. In this report attention is focused towards major Indian Players listed at BSE
or NSE.
Perception about the Industry Guide
My industry guide C.A Subhir Purkayastha, has been of immense help during the entire period of
my summer internship. It is only under his guidance that I have been able to complete my report
82
and make it as useful as it is. He has been a wonderful mentor, who has given me an
understanding of the entire industry along with the major role that GAIL (India) Ltd. has to play.
I would love to work under his guidance in the future.
83

Company Overview

Загружено:

Сведения о документе

Исходное описание:

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Company Overview

Загружено:

Авторское право:

Доступные форматы

1.

3.1 ABOUT THE COMPANY

Incorporated 16th August 1984

Turnover (2009-10) Rs. 24,996 crores

Net worth(2009-10) Rs. 3,140 crores

Registered office 16 Bhikaji Cama Place, RK Puram, New

Market share 78% market share in Natural Gas

Source: Annual reports of the company

Key Elements of GAIL's Vision

5. Value Creation for All Stakeholders

GAIL is committed to operational excellence in all we do with a focus on continuous efforts

The 2800-km Hazira-Vijaipur-Jagdishpur (HVJ) pipeline became operational in 1991. During

Figure 2.3 Sources of funds

Figure 2.4 Application of funds

Source: Annual reports of the company. (All figures in Rs. Crores)

GAIL Gas Limited

GAIL Global (Singapore) Pte Limited

Brahmaputra Cracker and Polymer Limited (BCPL)

World Natural Gas Consumption

India’s Natural Gas Demand

Sector wise Natural Gas Demand

India’s Natural Gas Supply

Sector wise Natural Gas Supply

Indian Petrochemical Industry is very small in comparison to International industry. It is

5.3 Exploration and Production (E & P)

6.1 Trend Analysis

Sales of Natural Gas

Revenue & Expenditure

b. PAT and Gross Margin

PAT & Gross Margin

If LPG subsidy has not been there :

Long -Term Solvency

Composition of Fixed Assets

LPG & LHC

6.3 Ratio Analysis

Liquidity/ Current Ratio

Long Term Solvency/Debt Equity Ratio

Return on Capital Employed

Earnings per share

PBT to Capital Employed

PBT to Net Worth

PBT to Net Sales

PBT to Gross Fixed Assets

Dividend Payout Ratio

Net worth per Rupee of Equity Capital

6.4 Comparative Financial Analysis

PAT & EBIT

PAT & EBIT

 On an average company’s Return on capital employed is maintained at above satisfactory

GAS Industry specific terminologies

BCM Billion Cubic Meters

CBM Coal Bed Methane

CNG Compressed Natural Gas

DVPL Dahej- Vijaipur Pipeline

E&P Exploration and Production

HDPE High Density Polyethylene

HVJ Hajira vijaipur Jagdispur

JLPL Jamnagar Loni Pipeline

KG basin Krishna Godavari Basin

LHC Liquid Hydrocarbons

LLDPE Linear Low Density Polyethylene

LNG Liquefied Petroleum Gas

MMT Metric Million Tonne