GAIL is India's largest gas transmission and marketing entity, with 5,600 km pipeline assets spanning across the western and northern corridors of India. Over next 4-5 years, the company plans to double its pipeline assets to more than 10,000 km. The company has presence in petrochemicals and LPG businesses as well, which together constitute around 25% of its revenues. The company has also forayed into exploration and production (E&P) and City Gas Distribution (CGD).
Industry – Diversified
With rapid industrialization and urbanization on the back of healthy economic growth in India, the requirement for energy should increase manifold. Per capita energy consumption in India is dismal at 0.50kW as compared to approx. 2.5kW in the world, 11.4kW in USA, 6kW each in Japan and Germany and 2.0kW in China. India is a net importer of energy. It was importing about 18% of its energy requirements in 2002. In order to meet the burgeoning demand for energy and to gain self sufficiency India has started making huge investments in exploration and production of oil, gas, coal, etc. Huge gas reserves have been discovered in the Krishna Godavari (KG) and the Mahanadi Basins and exploration activity is going on at hectic pace. Also, with rapid urbanization and infrastructure development, gas transmission and distribution is supposed to grow manifolds. Domestic natural gas supply scenario is expected to show a marked improvement (more than 240 mmscmd) over next 3-5 years as gas discoveries at KG basin by exploration majors like Reliance Industries (RIL), GSPC, ONGC, etc., are likely to go on stream (at around 80-160 mmscmd).
Company
GAIL, a Government of India undertaking, is India's flagship Natural Gas Company integrating all aspects of the Natural Gas value chain including exploration & production, processing, transmission, distribution, marketing and other related services. GAIL holds 87% of market share in Natural Gas Transmission and 73% in Natural Gas Marketing. It owns North India's only gas based integrated Petrochemical complex at Pata. GAIL's portfolio includes joint venture companies in Delhi, Mumbai, Hyderabad, Kanpur, Agra, Lucknow, Bhopal and Pune for supplying Piped Natural Gas (PNG) to households and commercial users, and Compressed Natural Gas (CNG) to transport sector. GAIL sells over 70% (excluding internal usage) of the Natural Gas in the country. Of this, 41% is to the power sector and 30% to the fertilizer sector. To continue the growth momentum GAIL has planned a capital expenditure of Rs. 25000cr in next 5 years under which it also plans to double its pipeline capacity.
Key Investment Arguments
GAIL has a market cap of Rs. 27540.2cr, average daily volume of 152316 shares and net sales of Rs. 18078.3cr in FY07.
Its business has given a Return on net worth of ~22.3% in FY07. Its Operating profit and Net profit margins are at 19.6% and 13.2% resp. in FY07.
GAIL has achieved a 5-year CAGR of 11.9% in net sales, 6.0% in EBITDA and 15.0% in net profits.
GAIL trades at a PE multiple of 11.54, Price to Book ratio of 2.4 and Price to Sales ratio of 1.5.
Debt-equity ratio of 0.2 for FY06 is quite low for a company in such a capital intensive sector. As such, GAIL is comfortably placed to service its debt with interest coverage ratio at ~28%.
GAIL has posted better than expected results in the first quarter of FY08 on the back of higher EBITDA from its petrochemicals and LPG businesses. It registered a YoY growth of 4.1% in sales, 10.6% in EBITDA and 15.7% in Net Profits in the 1st quarter. EBITDA from petrochemicals and LPG business grew at 60% and 17% YoY whereas EBITDA from its core gas transmission business declined 22%. The company has forayed into the natural gas Exploration and Production (E&P) business which is a highly rewarding business leading to a significant re-rating in the future.
Gail has signed a MoU with BPCL for jointly promoting CNG and city gas projects in Uttar Pradesh and Maharashtra. It has also signed MoU with HPCL for jointly promoting CNG and city gas projects in Madhya Pradesh, Rajasthan and Gulbarga.
Gail owns 70% equity stake in a Rs. 5,460cr Petrochemical project in Assam, expected to be completed in 2011.
GAIL has been granted five new natural gas projects with total length of 3,300 km by the Ministry of PNG.
Gail looks forward to maintain its dominant position in gas business through 8 new pipelines to be laid. The new projects will consist of 5,800 km of Natural Gas high pressure trunk pipeline with a capacity to carry 130 MMSCMD of natural gas across the country.
The company has 7 LPG Gas Processing Units to produce 1.2 MMTPA of LPG and other liquid hydrocarbons.
Gail has North India's only gas based integrated Petrochemical complex at Pata with a capacity to produce 3,10,000 TPA of polymers.
Gail has 30 oil and gas exploration blocks and 3 Coal Bed Methane Blocks and 1,922 km of LPG Transmission pipeline network with a capacity to transport 3.8 MMTPA of LPG.
The company also has 13,000 km of Optical Fibre Cable (OFC) network offering highly dependable bandwidth for telecom service providers.
Gail has participating stake in the Dahej LNG Terminal and the upcoming Kochi LNG Terminal in Kerala.
It has established presence in the CNG and City Gas sectors in Egypt through equity participation in three Egyptian companies viz. Fayum Gas Company SAE, Shell CNG SAE and National Gas Company SAE.
GAIL also has a stake in China Gas Holding to explore opportunities in the CNG sector in mainland China.
Key Concerns
100% FDI has been allowed in laying pipelines. This would likely open up the gas transportation business to overseas companies giving rise to stiff competition to local companies such as GAIL. On the other hand this could also be an opportunity for GAIL to bring in a foreign partner.
Competitive Bidding Process for Pipelines - National Grid would be open for bidding and all sections may not be awarded to a single company. This would entail more competitive tariffs benefiting consumers and accelerate growth in investment of pipeline infrastructure. This could reduce the present hegemony of GAIL in gas transmission and distribution in India and impact margins too. _ Subsidies are a serious concern considering the government's ad hoc subsidy sharing mechanism that has impacted GAIL's profitability over the past two years.
Latest Developments
Gas Authority of India Ltd (GAIL) said it has signed a deal with Oil & Natural Gas Corp Ltd (ONGC), India's largest Oil & Gas Company to set up a joint venture for transporting, processing and marketing gas from ONGC's KG and Mahanadi basins on the east coast of India. Processed gas will be available for marketing by 2012.
GAIL has expressed its willingness to join the $13 billion Trans- Saharan gas pipeline that is to supply gas from Africa to the European market.
GAIL is in talks with Uzbekistan's National Petroleum Holding Company Uzbekneftegaz for setting up a joint venture company to supply gas to households and vehicles in Uzbek cities.
Conclusion
On the basis of research, we feel that this is a good stock to buy at the current market price. If everything goes well, the price is likely to appreciate to above 420 , within a year or so,
Industry – Diversified
With rapid industrialization and urbanization on the back of healthy economic growth in India, the requirement for energy should increase manifold. Per capita energy consumption in India is dismal at 0.50kW as compared to approx. 2.5kW in the world, 11.4kW in USA, 6kW each in Japan and Germany and 2.0kW in China. India is a net importer of energy. It was importing about 18% of its energy requirements in 2002. In order to meet the burgeoning demand for energy and to gain self sufficiency India has started making huge investments in exploration and production of oil, gas, coal, etc. Huge gas reserves have been discovered in the Krishna Godavari (KG) and the Mahanadi Basins and exploration activity is going on at hectic pace. Also, with rapid urbanization and infrastructure development, gas transmission and distribution is supposed to grow manifolds. Domestic natural gas supply scenario is expected to show a marked improvement (more than 240 mmscmd) over next 3-5 years as gas discoveries at KG basin by exploration majors like Reliance Industries (RIL), GSPC, ONGC, etc., are likely to go on stream (at around 80-160 mmscmd).
Company
GAIL, a Government of India undertaking, is India's flagship Natural Gas Company integrating all aspects of the Natural Gas value chain including exploration & production, processing, transmission, distribution, marketing and other related services. GAIL holds 87% of market share in Natural Gas Transmission and 73% in Natural Gas Marketing. It owns North India's only gas based integrated Petrochemical complex at Pata. GAIL's portfolio includes joint venture companies in Delhi, Mumbai, Hyderabad, Kanpur, Agra, Lucknow, Bhopal and Pune for supplying Piped Natural Gas (PNG) to households and commercial users, and Compressed Natural Gas (CNG) to transport sector. GAIL sells over 70% (excluding internal usage) of the Natural Gas in the country. Of this, 41% is to the power sector and 30% to the fertilizer sector. To continue the growth momentum GAIL has planned a capital expenditure of Rs. 25000cr in next 5 years under which it also plans to double its pipeline capacity.
Key Investment Arguments
GAIL has a market cap of Rs. 27540.2cr, average daily volume of 152316 shares and net sales of Rs. 18078.3cr in FY07.
Its business has given a Return on net worth of ~22.3% in FY07. Its Operating profit and Net profit margins are at 19.6% and 13.2% resp. in FY07.
GAIL has achieved a 5-year CAGR of 11.9% in net sales, 6.0% in EBITDA and 15.0% in net profits.
GAIL trades at a PE multiple of 11.54, Price to Book ratio of 2.4 and Price to Sales ratio of 1.5.
Debt-equity ratio of 0.2 for FY06 is quite low for a company in such a capital intensive sector. As such, GAIL is comfortably placed to service its debt with interest coverage ratio at ~28%.
GAIL has posted better than expected results in the first quarter of FY08 on the back of higher EBITDA from its petrochemicals and LPG businesses. It registered a YoY growth of 4.1% in sales, 10.6% in EBITDA and 15.7% in Net Profits in the 1st quarter. EBITDA from petrochemicals and LPG business grew at 60% and 17% YoY whereas EBITDA from its core gas transmission business declined 22%. The company has forayed into the natural gas Exploration and Production (E&P) business which is a highly rewarding business leading to a significant re-rating in the future.
Gail has signed a MoU with BPCL for jointly promoting CNG and city gas projects in Uttar Pradesh and Maharashtra. It has also signed MoU with HPCL for jointly promoting CNG and city gas projects in Madhya Pradesh, Rajasthan and Gulbarga.
Gail owns 70% equity stake in a Rs. 5,460cr Petrochemical project in Assam, expected to be completed in 2011.
GAIL has been granted five new natural gas projects with total length of 3,300 km by the Ministry of PNG.
Gail looks forward to maintain its dominant position in gas business through 8 new pipelines to be laid. The new projects will consist of 5,800 km of Natural Gas high pressure trunk pipeline with a capacity to carry 130 MMSCMD of natural gas across the country.
The company has 7 LPG Gas Processing Units to produce 1.2 MMTPA of LPG and other liquid hydrocarbons.
Gail has North India's only gas based integrated Petrochemical complex at Pata with a capacity to produce 3,10,000 TPA of polymers.
Gail has 30 oil and gas exploration blocks and 3 Coal Bed Methane Blocks and 1,922 km of LPG Transmission pipeline network with a capacity to transport 3.8 MMTPA of LPG.
The company also has 13,000 km of Optical Fibre Cable (OFC) network offering highly dependable bandwidth for telecom service providers.
Gail has participating stake in the Dahej LNG Terminal and the upcoming Kochi LNG Terminal in Kerala.
It has established presence in the CNG and City Gas sectors in Egypt through equity participation in three Egyptian companies viz. Fayum Gas Company SAE, Shell CNG SAE and National Gas Company SAE.
GAIL also has a stake in China Gas Holding to explore opportunities in the CNG sector in mainland China.
Key Concerns
100% FDI has been allowed in laying pipelines. This would likely open up the gas transportation business to overseas companies giving rise to stiff competition to local companies such as GAIL. On the other hand this could also be an opportunity for GAIL to bring in a foreign partner.
Competitive Bidding Process for Pipelines - National Grid would be open for bidding and all sections may not be awarded to a single company. This would entail more competitive tariffs benefiting consumers and accelerate growth in investment of pipeline infrastructure. This could reduce the present hegemony of GAIL in gas transmission and distribution in India and impact margins too. _ Subsidies are a serious concern considering the government's ad hoc subsidy sharing mechanism that has impacted GAIL's profitability over the past two years.
Latest Developments
Gas Authority of India Ltd (GAIL) said it has signed a deal with Oil & Natural Gas Corp Ltd (ONGC), India's largest Oil & Gas Company to set up a joint venture for transporting, processing and marketing gas from ONGC's KG and Mahanadi basins on the east coast of India. Processed gas will be available for marketing by 2012.
GAIL has expressed its willingness to join the $13 billion Trans- Saharan gas pipeline that is to supply gas from Africa to the European market.
GAIL is in talks with Uzbekistan's National Petroleum Holding Company Uzbekneftegaz for setting up a joint venture company to supply gas to households and vehicles in Uzbek cities.
Conclusion
On the basis of research, we feel that this is a good stock to buy at the current market price. If everything goes well, the price is likely to appreciate to above 420 , within a year or so,
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