Fortune Scrip     

Published: December 15, 2024
Updated: December 15, 2024

GAIL (India) Ltd

India’s Very Own Gas Godzilla!

As this fortnght’s Fortune Scrip, we have picked GAIL (India) Ltd, the country’s leading natural gas company with diversified interests across the natural gas value chain, including segments such as transmission & trading LPG, LNG regasification, city gas, petrochemicals LLH and E&P (exploration and production). It owns and operates a network of around 16,240 km of natural gas pipelines spread across the length and breadth of the country. It is also working concurrently on execution of multiple pipeline projects to further enhance its spread. GAIL commands a 66% marketshare in gas transmission and has a gas trading share of 54% in India. GAIL and its subsidiaries/JVs also have a commendable marketshare in city gas distribution.

In the liquefied natural gas (LNG) market, GAIL has a significantly large portfolio. The company is also a co-promoter of two other petrochemical plants, including the 280 ktpa BCPL complex in Assam and the 1.1 mmtpa Opal project in Gujarat. Further, it has acquired JBF Petrochemicals Ltd (JBFPL) of 1.25 mmtpa PTA (purified terephalic acid) through the corporate solvency resolution process (CSRP). JBFPL has been renamed Gail Mangalore Petrochemicals Ltd, and is now a wholly owned subsidiary of GAIL.

GAIL holds a participating interest in 10 domestic E&P blocks, 2 E&P blocks in Myanmar, and one shale gas asset in the US. It is also a promoter of Konkan LNG Pvt Ltd, which operates a gasification unit at Dabhol with a design capacity of 5 mmtpa. It is a pioneer in the city gas distribution (CGD) business in India, with 8 JVs and 3 subsidiaries in the country for this business, notably Indraprastha Gas Ltd in Delhi and Mahanagar Gas Ltd in Mumbai.

GOING GREEN

GAIL has successfully commissioned India’s first project for blending of hydrogen in the city gas station at Indore. The company has installed its first green hydrogen plant of 10 MW capacity at Vijaipur in Madhya Pradesh. It is also expanding its presence in renewable energy like solar, wind and biofuel.

The company has made steady progress on the financial front. During the last 12 years, its sales turnover has more than doubled from Rs 50,974 crore in fiscal 2013 to Rs 133,228 crore in fiscal 2024, with operating profit almost doubling from Rs 7,427 crore to Rs 14,314 crore and the profit at net level more than doubling from Rs 4,367 crore to Rs 9,903 crore.

The company’s financial position is very strong, with reserves at the end of March 2024 standing at Rs 77,234 crore – almost 12 times is equity capital of Rs 6,575 crore, that too after as many as 5 bonus issues, besides paying handsome dividends regularly. But we have not picked GAIL as the Fortune Scrip this time for its past laurels — we strongly feel the company has very strong fundamentals and its future prospects are all the more promising. Consider:

• The PSU is the country’s numero uno gas distribution and marketing company. Fundamentally it is very strong and has been performing extremely well year after year. The near- and medium-term outlook is highly positive. The company’s business is such that it is not facing — and will not face in the medium term — any stiff competition. It is expected to continue to benefit from its leadership position in the natural gas transmission business and the continued support of the government, given the strategic importance of the sector. CARE Ratings expects GAIL to maintain a healthy operational and financial risk profile with increased scale of operations and a healthy capital structure.

GAS TIE-UPS

• GAIL can expect sustained healthy growth on account of adequate gas tie-ups. Over the years, the company has developed adequate tie-ups for the supply of natural gas – both domestically and internationally. For example, during fiscal 2024, it sourced around 41 per cent of its total natural gas requirements through domestic sources, which include ONGC’s Ravva coalbed methane. The balance gas requirement is sourced through imported regasified liquefied natural gas (RLNG) from the US and Singapore.
• The company’s revenue risk is mitigated by the regulated nature of the natural gas transmission business and a diversified revenue stream. Besides, it has established a presence in various other business segments like city gas distribution, petrochemicals, liquid hydro carbons, ENP and telecom. As a result, GAIL received a regulated return on capital employed (RoCE) of 12% which is determined by the Petroleum and Natural Gas Regulatory Board (PNGRS), leading to stable cash flows and healthy profitability.

• The acquisition of JBF Petrochemicals through the Insolvency and Bankruptcy Board will help GAIL expand its presence in southern India as well as its portfolio of petrochemical products. The management expects to complete the revival of JBF Petro’s PTA plant at an estimated cost of Rs 2,000 crore by March/April 2025.

LARGE CAPEX

• The company continues to embark upon high capex plans. After spending Rs 7,000 crore in fiscal 2021, Rs 6,800 crore in fiscal 2022 and Rs 9,100 crore in fiscal 2023, it undertook a capex of Rs 10,500 crore in fiscal 2024.
• The Government of India (which owns over 51 per cent stake in GAIL) is considering splitting GAIL by hiving off its pipeline business into a separate entity. This hived-off company is proposed to be sold to a strategic investor. If and when this demerger takes place and the pipes division is hived off, the then existing shareholders will benefit a lot. Of course, in the recent downturn in the stock market, the share price of GAIL has gone down noticeably, but this is a good opportunity for discerning investors to accumulate these shares. They are bound to benefit by remarkable appreciation. Besides, the management is expected to continue issuing bonus shares at regular intervals.