Company Analysis – GAIL
GAIL is Navratna Company under the Government of India. It deals in exploration, transmission and distribution of Natural Gas along with interests in petrochemical business. The Company Analysis has been done considering the Industry Analysis on the whole who le as well as Analysis of the Company in particular.
Industry Analysis: The Industry analysis is done considering the major sector of GAIL India’s operations is Natural Gas and related substances.
Indian Perspective: According to the latest data available on the Ministry of Petroleum and Natural Gas website,
- India has total reserves (proved & indicated) of 1241.0 billion cubic meters of natural gas as on 1.4.2011. - Gross Production of Natural Gas in the country is 52.22 billion cubic meters during 2010-11 is 9.95% higher than the production of 47.50 billion cubic meters during 2009-10. - 2.168 million metric tonnes of LPG production from natural gas in the year 2010-11 against 2.243 million metric tonnes of LPG production from natural gas in the previous year. - Total Natural Gas production during the month of May 2012 (latest data available on the website) is 3696.56 Million Cubic Meters. - The total number of LPG consumers of Public Sector Oil Marketing Companies as on 1.4.2011 were 125.266 million against 114.952 million as on 1.4.2010. - The total import of natural gas by India 2012 is 12,620,000,256 cub meter (en.wikipedia.org).
World Perspective: At the same time there has been an increase in the Natural Gas production in the world due to the discovery of newer sites of gas. As per data the total gas reserves in the world in the year 2010 were around 3330 Tr.Cu.ft.
Latest Developments: As per the latest efforts plans to import liquefied natural gas to India, using pipelines and terminals from Canada's East Coast as underway. Many state and central government companies are taking active interest in securing this deal.
PEST ANALYSIS: Oil and Gas Industry : Oil and Gas has been and will continue to be one of the most important industries due to the ever growing demand for Oil, Gas and related petroleum products.
Development of such an industry in India is of prime importance considering India imports 80% of its fuel demand. Political : Organization of the Petroleum Exporting Countries (OPEC), an intergovernmental organization of oil producing countries is the main safeguard of the oil resources found in majority of the oil rich countries. They control the international crude oil prices. Along with OPEC other organizations which have a control on the internal Oil prices is Organization for Economic Co-operation and development (OECD). Oil and Gas has been the hidden reason behind various wars like the Kuwait Invasion, The Iraq war etc. In India too development of KG Basin has been a point of contention between the government companies like ONGC and private players like Reliance with events having taken a political turn. In December 2006, the Minister of Petroleum and Natural Gas issued a new policy that allows foreign investors, private domestic companies, and national oil companies to hold up to 100% equity stakes in pipeline projects. Also under New Exploration Licensing Policy, newer licenses are given to explore and get oil and gas. Economic : Finding of Oil reserves has been seen as a gold mine as Oil and gas reserves are limited and the prices of crude are rising by the day. For a nation like India the major import is that of crude and subsidies provided on petroleum products has been causes loses to the government and Oil companies. The current prices of crude oil per barrel are around $105 with a variation of 79 to 109 $ over the past 1 year (Source: http://www.oil-price.net/ ). This industry of great importance as various other industries depend this sector for its fuel requirement. The economic growth of a nation is related to availability of crude. Nations with abundant oil reserves are known to be self sufficient in terms of economy. The subsidies provided are causing loses to the government owned enterprises. Social : Oil fields and rigs are located in deep seas or mostly in other remote locations. Safety turns out to be a major factor which influences the lives of the people working. The accident of a helicopter carrying ONGC officials in 2003 was an event which brought safety aspect to the fore. (Source: http://www.ongcindia.com) Technology : Technological developments have led to increased exploration and finding of Oil reserves. Transportation development has happened in this region over the past few years. Also through various JV’s newer and newer technology has entered our country.
Competitor Analysis:
ONGC and Oil India Ltd. (OIL) are the leading companies with respect to production volume, while some foreign companies take part in upstream developments in joint-ventures and
production sharing contracts. Reliance Industries, a privately-owned Indian company, will also have a bigger role in the natural gas sector as a result of a large natural gas find in 2002 in the Krishna Godavari basin. These companies though not direct competitors to GAIL have conflicting interests in certain areas. Also ONGC and GAIL India have confirmed their interest in bidding for UK-based Cove Energy jointly This sector is fully open to Foreign Direct Investment (FDI) with 100 percent equity through automatic route, subject to sectoral regulation that is equally ap plicable to domestic and foreign players. With the entry of Videocon Industries in Oil and Gas business competition is on the rise. Also Videocon Industry plans to bring in Natural Gas from its reserves in Mozambique. The current expected natural gas from this region is around 15-30 trn cubic feet. Along with that Videocon has exploration and production in countries like Brazil, East Timor, Indonesia and Australia. (Source: www.videoconworld.com) SWOT Analysis of the Industry:
Strengths -High Value Industry - Demand always greater than supply - Huge economic factors involved - Called the fuel of 21st century - Huge employment opportunities created
Weakness -
Wars fought in order to secure interests Supply is not regular leading to loss of confidence.
. Opportunities -
-
Marketing of Natural Gas and its associated products like LNG, PNG etc as alternate sources of fuel essential Large potential gas regions still under exploration
Company Analysis: GAIL (India) Limited – A Navratna Company
Threats -
Reserves are fast depleting and exploration of new reserves essential
Formation of GAIL (Data as per company website) GAIL (India) Ltd was incorporated in August 1984 as a Central Public Sector Undertaking (PSU) under the Ministry of Petroleum & Natural Gas (MoP&NG). The company was initially given the responsibility of construction, operation & maintenance of the Hazira – Vijaypur – Jagdishpur (HVJ) pipeline Project. Domestic Business Setup: GAIL, has grown organically by building large network of Natural Gas Pipelines covering over 9500 Km with a capacity of around 172 MMSCMD; two LPG Pipelines covering 2040 Km with a capacity of 3.3 MMTPA of LPG; 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 which is further being expanded to a capacity of 900,000 TPA.
The Company also has 70% equity share in Brahmaputra Cracker and Polymer Limited (BCPL) which is setting up a 280,000 TPA polymer plant in Assam. GAIL has 31.52% stake along with NTPC as equal partner in JV Company, RGPPL at Dabhol which operates largest gas based power generation facility in the country and is also setting up 5 MMTPA LNG terminal. The company has entered into Exploration & Production and currently has stakes in 31 E&P blocks including 2 blocks overseas (in Myanmar). GAIL is a pioneer in City Gas Distribution (CGD) business in India, with Indraprastha Gas Limited (IGL) in Delhi and Mahanagar Gas Limited (MGL) in Mumbai being its biggest success stories. Also it has presence in many cities like Hyderabad, Kanpur etc. As a part of its initiative towards reducing carbon footprint and creating a path of sustainable growth, GAIL is building a portfolio of renewable businesses. The company has successfully commissioned wind energy power projects of 118 MW across states of Gujarat, Tamil Nadu and Karnataka. Global presence: GAIL has formed a wholly-owned subsidiary company, GAIL Global (Singapore) Pte Ltd. in Singapore for pursuing overseas business opportunities including LNG & petrochemical trading. GAIL has also established a wholly owned subsidiary, GAIL Global (USA) Inc. in Texas, USA. GAIL has a JV’s in countries like Egypt, China, Myanmar etc.
The company currently has its presence in 8 business verticals namely Natural Gas, Liquid Hydrocarbon, LPG Transmission, Petrochemicals, City Gas Distribution, Exploration and Processing, GAILTEL, Power. The company is headquartered in New Delhi and employs about 3500 people.
CSR Activities:
GAIL has allocated an annual budget of 2% of the previous year’s Profit after Tax for CSR activities. Over the years the scope, the nature and the systems adopted have been streamlined and strengthened. Today CSR & sustainability development is accorded high priority in the organizational ethos. Programs of approximately 57.5 crores have been undertaken for implementation under various trusts in areas of Community Development, Healthcare, Skill Development etc in the year 2010. Greetech Foundation has awarded the CSR Gold award to GAIL in the year 2011.
Share Holding Pattern:
GAIL being a government entity, majority of the shares is held by the Central/State government.
The table gives the percentage holding considering the Promoters Stake and the Public stake in the company Stake
As a percentage of total of promoters and public stake
Promoters Stake 1) Central/ State Government (President of India)
57.35
Public - Institutions 1) Mutual Funds/ UTI
2.79
2) Financial Institutions/ Banks
2.81
3) Central/ State Government Companies
7.24
4) Insurance Companies
12.04
5) FII
13.63
Public – Non-Institutions 1) Corporate
1.15
2) Individuals
2.02
3) Trusts
0.05
4) NRI
0.079
The following pie-chart gives the distribution of shares of the company.
Company Management:
The GAIL management has been divided into different levels as shown: Chairman and Managing Director: Sh. B. C. Tripathi Whole Time Directors: Sh. R. D. Goyal, Sh. S. L. Sinha, Sh. Prabhat Singh, Sh. S. Venkatraman, Sh. P.K. Jain Part Time Directors (Govt. Nominees): Sh. Sudhir Bhargava, Dr.Neeraj Mittal
Financial Results: On yearly basis the sales turnover for the year which ended March’12 (Standalone), has increased from 32,536 cr to 40397 cr Rs. that’s an increase of 24%. Operating profit in the same period has increased 5%. Whereas there has been an increase of 2% to Rs. 3654 cr.
On a quarterly basis it has reported a sales turnover of Rs. 10,488.40 crores and a net profit of Rs 483.34 cr for the quarter ended Mar12. For the quarter ended Mar 2011 the sales turnover was Rs. 8908.93 crores and net profit was Rs 783.07 cr.
India caps prices of petroleum products such as diesel, cooking gas and kerosene and producers such as ONGC and GAIL share the cost of subsidizing refineries by selling oil and gas to them at a discount. State oil companies last week raised retail gasoline prices by Rs 7.54/litre, but the government, faced with street protests, is yet to take a decision on diesel, cooking gas and kerosene. GAIL provided discounts of Rs 1398 crores during the quarter, compared to Rs 901 crores a year earlier. SWOT Analysis:
Strengths Weakness -Largest and biggest transmission network -Subsidies in the form of discounts - Brand which has investor confidence - Since a government entity decision - A very large capacity petrochemical plant making affected. - Only major supplier for Gas based power - Large dependence on international supply plants. chain -Supply fuel which is environmentally - Drop in gas supply leading to unreliability friendly - played a key role as gas market developer - 70% market share in both gas transmission and marketing. -Increased global ventures for energy security - Having a profile from Upstream to Downstream of the Gas segment. Opportunities - KG Basin Gas reserve - Increasing the reach of supply of PNG - Optical Fiber network can be better utilized for commercial purposes. - Formation of National Gas Grid
Business Strategies:
Threats -
-
Increasing costs of gas in international markets High domestic competition ONGC etc.
Since GAIL India laid its pipeline (Hazira – Vijaynagar – Jagdishpur) in 1987, it has made lots of progress in Gas transmission and distribution and also has entered into the petrochemical business as well as power sector. The first major event after the setting up of the transmission pipeline was the foray into the LPG business with the commissioning of the LPG plant in 1990 and the signing of first JV with Mahangar Gas Limited for supplying PNG for Mumbai city. Also during 1996 GAIL India formerly known as the Gas Authority Of India Limited was awarded Navratna status by the government of India. Its LPG footprint increased with the commissioning of the LPG plants at Usar and Lakwa. The need to diversify the portfolio was essential and GAIL entered into a new vertical of petrochemicals when the petrochemical complex of Pata was commissioned in 1999. In 2001 Gail commissioned Jamnagar-Loni LPG Pipeline Project, worlds longest and India's first Cross-Country LPG 1269 km long pipeline. Also it picked up stake in GSEC’s 156 MW power plant in Gujrat. Thus GAIL had its presence in Gas transmission distribution and marketing as well as in the power and the petrochemical sector. Over the last few years GAIL recognized it needed to go upstream in the Gas exploration and processing business. Currently it is participating in 31 exploration blocks out of which 2 are in Myanmar. GAIL also increased its footprint outside India by having JV’s with companies outside India in Egypt, China etc. and having wholly owned subsidiary in Singapore and US for its world operations. In 2011 GAIL acquired a 20% stake in Houston-based Carrizo Oil and Gas’s Eagle Ford shale acreage, first instance of a PSU acquiring shale assets in USA. Also in the same year it won the rights to lay a 1550-km, $1bn natural gas pipeline from Surat in Gujarat to Paradip in Orissa, connecting west to east coast. In the current year GAIL was conferred MoU Excellence Award for the year 2009-10 for Best Performing CPSE in the Petroleum Sector consecutively for secon d year. GAIL became the only company from Oil and Gas sector to be included in BSE Greenex, India's first energy efficient index. GAIL’s 2200 km Dahej-Vijaipur-Dadri-Bawana-Nangal-Bhatinda cross-country pipeline inaugurated by Prime Minister & GSPA signed between GAIL and TurkrnenGaz for Turkmenistan-Afghanistan-Pakistan-India (TAPI) Gas Pipeline Project. GAIL targets for over 85 MMSCMD Gas Marketing and 121 MMSCMD Gas Transmission in FY 2012-13 (mmscmd:million standard cubic meter per day).
Thus over the years GAIL has laid the largest network of pipelines in the country. At the same it has strived towards achieving energy security for the country.
