GAIL India Ltd - Zen Money

Company Profile: GAIL (India) Ltd was incorporated in August 1984 as a Central Public Sector Undertaking (PSU) under the Ministry of Petroleum and Natural Gas (MoP&NG). GAIL is the country's premier Natural gas marketer & transporter, diversified into the manufacturing and marketing of downstream HDPE/LLDPE from its natural gas cracking unit. GAIL has a large network of Natural gas pipelines covering about 9500 kms with a capacity of 175 MMSCMD; two LPG pipelines covering around 2050 kms with a total capacity of 3.24 MMTPA; seven gas processing plants for production of LPG and other liquid Hydrocarbons, with a production capacity of 1.4 MMTPA; and a gas based integrated Petrochemical plant of 410,000 TPA polymer capacity. Apart from this, the company has a shale gas asset in USA and is involved in LNG & petrochemicals sourcing and trading through its subsidiary in Singapore namely, GAIL Global Singapore Pte. Ltd.

Strengths:

- GAIL has a monopolistic market share of 75% in gas transmission business in the country.

- Apart from the Gas transportation business, the company has diversified into other related businesses like Petrochemicals, LPG and City Gas Distribution.

Concerns:

- GAIL classified as an upstream company, shoulders certain part of subsidy burden for LPG and Kerosene (around Rs. 3200 crore for FY13).

- Lower tranmission volumes and restriction of marketing margins for LPG transmission by PNGRB affect the company's top-line and bottom-line respectively.

Outlook: The company is in the process of expanding its business with a total capital outlay of Rs. 45,000 crore. Bulk of the stated amount will be going into increasing its gas transmission network to 15000 km and gas carrying capacity to 320 mmscmd. Apart from these capex plans, the company is also aggressively expanding into LNG space; presently the company has tied up supplies of 15 million tonnes and intends to increase it to 20 million tonnes by 2020. In a strategic move, the company plans to source 50% of this LNG from USA as gas prices are cheaper in USA. Apart from all the above expansions, the present fall in Crude Oil prices, possible appreciation in Rupee value and capping of the number of subsidized LPG Cylinders by the Government are all going to help the company in reducing its subsidy burden. These factors along with the company's monopolistic position in Gas transmission space hold it in a good stead for the medium to long term.

Source : Equity Bulls

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