Gail Report

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PROJECT REPORT

ON

GAIL

Submitted To: Submitted By:

Prof. Sanjeela Mathur Manvi Dani (18)

PGDM-IB VII


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TABEL OF CONTENT

CHAPTER NO. TOPIC NAME PAGE NO.

1. INDUSTRYANALYSIS 4

2. COMPANYANALYSIS 10

3. PROFITABILITYANALYSIS

19

4. CUSTOMERSATISFACTION

23

5. EMPLOYEEENGAGEMENT

24

6. COMPETITIVEANALYSIS

25


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7. CONCLUSION 30

8. BIBLOGRAPHY 31


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INDUSTRY ANALYSIS


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To understand the Indian gas market and its current issues, it is necessary to have a look back

at the historical development of the energy industry, and in particular the gas industry, and

see how gas market players were created or entered the market. The Indian gas market is

expected to be one of the fastest growing in the world over the next two decades: the IEA

forecasts gas demand to increase at 5.4% per annum over 2007-30 (IEA, 2009) reaching 132

bcm by 2030. Indian primary energy supply is currently dominated by coal (37%), biomass

and waste (27%) and oil (26%) while the share of natural gas is only 6%.It is also crucial to

understand how the regulatory framework was set up and the interactions between the

government and the industry. Before 2009, gas demand potential was estimated to be 20 or

30 bcm higher than actual use as consumption had been constrained by the lack of supply for

over a decade (MoPNG, 2000). To address the supply shortfall, the Indian government passed

some reforms at the end of the 1990s to encourage domestic production and the construction

of liquefied natural gas (LNG) terminals. In particular, the New Exploration Licensing Policy

(NELP) opened Exploration & Production to private and foreign companies. This has been

relatively successful: after Stagnating since the early 2000s, Indian gas production is

expected to double between 2008 and 2011 due to the start of the Krishna Godavari KG-D6

field in April 2009.The year 2009 therefore marks a turning point for the Indian gas market:

with new supplies available, Indian gas consumption increased to 59 bcm in FY 2009/10,

from 43 bcm in FY 2008/09.Meanwhile a third LNG terminal is expected to start in 2010.

But challenges remain, illustrated by NELPs failure to attract the major international oil

companies and the long battle over the allocation and price of KG-D6 gas. The government is

now considering introducing an Open Acreage Licensing Policy (OALP).

Like in many markets, the Indian energy (and gas) sector has been built on state-owned

companies such as ONGC, OIL and GAIL, but has seen the entrance of some significant

private Companies in the past few years. Some players are present at many levels of the gas

value chain. The conditions for private companies to operate in the Indian market are

difficult, due to government interventions on gas prices and allocation, the existence of a dual

pricing system and the lack of a transparent, predictable and stable regulatory framework.

An Industry Analysis provides an objective analysis on the Oil & Gas sector in India along

with detailed information on the exploration, production and other processes. Annual

consumption figures and future growth projections are also included in this report.


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It gives a detailed overview of the opportunities, challenges and critical success factors for

the growth of the industry.

This industry includes the global processes of:

Exploration,

Extraction,

Refining,

Transporting (often by oil tankers and pipelines), and;

Marketing petroleum products.

Figure: 1


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The largest volume products of the industry are fuel oil and gasoline (petrol). Petroleum is

also the ra w materi al for many chemi cal products, including pharmaceuticals, solvents,

fertilizers, pesticides, and plastics. The industry is usually divided into three major

components:

1. Upstream,2. Midstream and ,3. Downstream.

The upstream sector includes the searching for potential underground or underwater oil and

gas fields, drilling of exploratory wells, and subsequently drilling and operating the wells that

recover and bring the crude oil and/or raw natural gas to the surface.

Midstream operations are usually included in the downstream category.

The downstream oil sector is a term commonly used to refer to the refining ofcrude oil, and

the selling and distribution ofnatural gas and products derived from crude oil. Such products

include liquefied petroleum gas (LPG), gasoline or petrol, jet fuel, diesel oil, otherfuel oils,

asphalt and petroleum coke.

The downstream sector includes oil refineries,petrochemical plants, petroleum product

distribution, retail outlets and natural gas distribution companies. The downstream industry

touches consumers through thousands of products such as petrol, diesel, jet fuel, heating oil,

asphalt, lubricants, synthetic rubber, plastics, fertilizers, antifreeze, pesticides,

pharmaceuticals, natural gas, and propane.

Petroleum is vital to many industries, and is of importance to the maintenance of

industrialized civilization itself, and thus is a critical concern for many nations. Oil accounts

for a large percentage of the worlds energy consumption, ranging from a

Low of 32% for Europe and Asia, Up to a high of 53% for the Middle East. Other geographic regions South and Central America 44%, Africa 41%, and North America 40%.
http://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Natural_gashttp://en.wikipedia.org/wiki/Oil_refineryhttp://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Natural_gashttp://en.wikipedia.org/wiki/Petroleum_producthttp://en.wikipedia.org/wiki/Liquified_petroleum_gashttp://en.wikipedia.org/wiki/Gasolinehttp://en.wikipedia.org/wiki/Jet_fuelhttp://en.wikipedia.org/wiki/Diesel_oilhttp://en.wikipedia.org/wiki/Fuel_oilhttp://en.wikipedia.org/wiki/Asphalthttp://en.wikipedia.org/wiki/Petroleum_cokehttp://en.wikipedia.org/wiki/Oil_refineryhttp://en.wikipedia.org/wiki/Petrochemicalhttp://en.wikipedia.org/wiki/Petrolhttp://en.wikipedia.org/wiki/Diesel_fuelhttp://en.wikipedia.org/wiki/Jet_fuelhttp://en.wikipedia.org/wiki/Heating_oilhttp://en.wikipedia.org/wiki/Asphalthttp://en.wikipedia.org/wiki/Lubricantshttp://en.wikipedia.org/wiki/Synthetic_rubberhttp://en.wikipedia.org/wiki/Plasticshttp://en.wikipedia.org/wiki/Fertilizershttp://en.wikipedia.org/wiki/Antifreezehttp://en.wikipedia.org/wiki/Pesticideshttp://en.wikipedia.org/wiki/Pharmaceuticalshttp://en.wikipedia.org/wiki/Natural_gashttp://en.wikipedia.org/wiki/Propanehttp://en.wikipedia.org/wiki/Propanehttp://en.wikipedia.org/wiki/Natural_gashttp://en.wikipedia.org/wiki/Pharmaceuticalshttp://en.wikipedia.org/wiki/Pesticideshttp://en.wikipedia.org/wiki/Antifreezehttp://en.wikipedia.org/wiki/Fertilizershttp://en.wikipedia.org/wiki/Plasticshttp://en.wikipedia.org/wiki/Synthetic_rubberhttp://en.wikipedia.org/wiki/Lubricantshttp://en.wikipedia.org/wiki/Asphalthttp://en.wikipedia.org/wiki/Heating_oilhttp://en.wikipedia.org/wiki/Jet_fuelhttp://en.wikipedia.org/wiki/Diesel_fuelhttp://en.wikipedia.org/wiki/Petrolhttp://en.wikipedia.org/wiki/Petrochemicalhttp://en.wikipedia.org/wiki/Oil_refineryhttp://en.wikipedia.org/wiki/Petroleum_cokehttp://en.wikipedia.org/wiki/Asphalthttp://en.wikipedia.org/wiki/Fuel_oilhttp://en.wikipedia.org/wiki/Diesel_oilhttp://en.wikipedia.org/wiki/Jet_fuelhttp://en.wikipedia.org/wiki/Gasolinehttp://en.wikipedia.org/wiki/Liquified_petroleum_gashttp://en.wikipedia.org/wiki/Petroleum_producthttp://en.wikipedia.org/wiki/Natural_gashttp://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Oil_refineryhttp://en.wikipedia.org/wiki/Natural_gashttp://en.wikipedia.org/wiki/Petroleum


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The world consumes 30 billion barrels (4.8 km) of oil per year, with developed nations being

the largest consumers the production, distribution, refining, and retailing of petroleum taken

as a whole represents the world's largest industry in terms of dollar value.

KEY FINDINGS:

India, in 2004-2005, met 75 %of its crude oil demand through imports. Thedomestic production of crude oil has been in the range of 30-34 Million Metric Tons

from 2001-2005. About 60 % of its crude import is from Middle East.

The consumption of natural gas grew at a CAGR of 2.7 % in the period 1999-2005,supported by rise in availability through domestic and imported sources of gas.

Oil comprises 36 % of Indias primary energy consumption in 2005, and is expectedto grow both in absolute and percentage terms driven by overall economic growth.

Growth in demand catapult the overall demand to 196 Million Metric Tons in 2011-

2012 and 250 Million Metric Tons in 2024-25.

Demand for oil is expected to grow from 119 Million Tons Oil Equivalent (MTOE),from 2004, to 250 MTOE, during 2025, at an annual growth of 3.6%. During the same

period domestic production from existing developed reserves is expected to grow at

approximately 2.5 %.

Natural gas comprises 14% of Indias primary energy consumption at present and demand for

natural gas is also likely to increase at an annual growth rate of 7.3%.

INDUSTRY HIGHLIGHTS:

IRG has recently downgraded its positive outlook on the Crude & Natural GasIndustry to Neutral outlook in December 2011.

Favourable demand outlook for natural gas in India to continue: Demand fornatural gas has been growing and continuing to grow at an unrelenting pace. From the

current share of 10% of the energy basket of the country, it is anticipated to grow

about to 25% by 2025. The demand from a variety of consuming sectors. However

power and fertilizer would require the maximum amount of gas in quantitative terms.

Future Prospects: Indias current gas transmission pipeline length is estimated at11900km (GAIL: 8000km; GSPL: 2000km; RGTIL: 1400km; OIL/AGCL: 500km)


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with a capacity of around 283MMSCMD as per a report format from ICRA dated

October 2011.Further, the pipeline network in India currently covers mainly the

western, central and northern parts, with the network being limited in southern and

eastern India.

GAS COMPANIES MARKETING SETUP

COMPANIES MARKETING THROUGH

ONGC & JVs GAIL OIL OIL ITSELF (EXCEPT RAJASTHAN

THROUGH GAIL)

CAIRN ENERGY LTD. ITSELF GSPCL ITSELF

Table: 1


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COMPANY PROFILE


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INTRODUCTION TO GAIL

GAIL (India ) Limited was incorporated in August 1984 is engaged in transmission, gas

processing and downstream petrochemicals (which use natural gas as a primary input).Apart

from these businesses, GAIL also has interests in the Liquefied Natural Gas (LNG) business

and in city gas distribution projects both in India and overseas.

GAIL enjoys dominant position in the natural gas business with a market share of 75%. The

company is the only transmitter of gas with a national presence through its pipeline network

covering 7850km.

GAIL group of companies accounts for:

About 3/4th of natural gas transmitted in India through pipeline. More than of the natural gas sold in India. Almost 1/5th (21%) of polyethylene produced in the country. LPG produced for every 10th LPG cylinder in the country. Pipeline transmission of around 1/4thof the countrys total LPG. Gas supply for about of the countrys fertilizer produced. Gas supply for about of the countrys gas based power generation. Operating more than 2/3rd of countrys CNG station. More than countrys piped natural gas supply.

MAJOR PRODUCTS AND BRANDS:

Petrochemicals (G-Lex, G-Lens)

Liquid hydrocarbons (propane , pentane)City distribution gas (CNG, PNG)

Telecom (Gailtel)

Since 1984, GAIL has made significant contribution to the nations economy by supplying

natural gas through its pipeline network for:

Generation of over 87,000 MW of power. Production of over 145million tonnes of urea.


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Production of LPG for over 7cr. Households in the country Over 5.7 lakhs vehicles inthe country today running on CNG supplied by GAIL and over 7 lakhs households on

piped natural gas (PNG) in the country.

Production of petrochemicals of around 4 lakhs MTs which is used in the plasticindustry.

GROWTH:

The company has completed nearly two and half decades of an eventful journey. Starting

with a natural gas transmission co., it is today and integrated energy company along the

natural gas value chain with global footprints. Having started as a gas transmission company

in the year 1984, it grew organically over the years by building a large network of natural gas

trunk pipelines covering a length of around 7000 km. and over 1900 LPG Pipeline

Transmission network. The Company has added another 5000 km. of new pipelines in the

year 2011 at the estimated cost of Rs. 14,500 crores which have been approved by the Board

of the Company under Navratna Power? Today the company has interest in the business of

natural gas, LPG, liquid Hydrocarbons and Petrochemicals, Exploration and Production, City

Gas Distributions and is steadily developing its overseas presence. The major focus of the

company is to maintain its dominant position in the gas business, specially the transmission

segment. The thrust is to continue the relationship with existing customers as well as add new

customers. These new Pipeline would include large trunk Pipelines along with smaller

Pipelines which would connectivity along trunk lines so that prospective sources and

consumers are connected. In the year (2007-08) the Board of the Company has recommended

the issuance of one bonus share for every two equity shares held, subject to requisite

approvals.


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GAILS PIPELINE NETWORK TO THE GAS CONSUMERS IN THE

STATES OF:

GUJRAT

MAHARASHTRA

RAJASTHAN

MADHYA PRADESHDELHI

HARYANAUTTAR PRADESH

ANDHRA PRADESH

TAMILNADU

ASSAMTRIPURA.


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Figure: 2

In addition to supplying natural gas to various consumers, GAIL has also setup 7LPG plants and a petrochemical plant to extract value added products from gas.

GAIL produces around 1.35 MMTPA of liquid Hydrocarbon including LPG fromdomestic consumption.


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In the area of corporate social responsibility, one of the major projects of GAILhas been setting up of AIR POLLUTION RELATED DISEASE DIAGNOSTIC

CENTRES (APRDCs) in over 20 cities in various parts of the country, at a cost of

about Rs.4 cr. APRDC also works as R&D for development of facilities for

diagnosing suspended particles, which are known to cause acute heart diseases.

With the APRDC going functional, the hospital has acquired a system for

pulmonary lung function testing and other base line investigation of air pollution

related diseases.

To Combat the Pollution, GAIL is set to supply Natural Gas in 23 cities underBlue Sky Project in Mumbai, Pune, Sholapur, Agra, Allahabad, Kanpur,

Lucknow, Mathura, Ahmadabad, Hyderabad, Vijayawada, Gwalior, Indore,

Jhansi, Bareilly, Delhi, Ujjain, Kota, Kochi, Rajahmundry, Chennai, and

Bangalore.

GAIL has initiated steam conversion project based on waste heat recovery systemfrom GAILs gas turbines. This rare, multi-benefit project would not only utilize

clean development mechanism (CDM) for power generation, but also lead to

conversion of gas as well as increased energy efficiency.

Gail has consistent track record of dividend payment. So far GAIL has disburseddividend of Rs. 6,230 cr. to the shareholders including Govt. of India, which is

more than seven times the original investment of rs.845.65 cr. by the Government

in its equity capital. The Government has been disinvesting its shareholding in

GAIL from time to time, bringing down its equity holding to 57.345 % and

thereby contributing to the exchequer and additional amount of Rs. 3400cr.

CORPORATE STRATEGY ADOPTED BY GAIL:

The company has develop a long term strategic plan which has been reoriented during the

year, keeping in view the unfolding demand and supply scenario, entry of new competitors,

and changing dynamics in the market place. The goal set by the company includes doubling

of top and bottom lines in the near future. The strategy developed to realize the set goals is as

under:


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1. Tying up with producers and suppliers for marketing and transmission of natural gas on

long term and sustainable basis. This is likely to be realized by security more gas from new

gas finds and pursuing early finalization of contract with customers and suppliers.

2. Expanding of the pipeline structure from 7000 km. to 12000 km. with the laying of new

pipelines by 2011-12.

3. Pursuing of city gas distribution opportunities in the country. This requires the introduction

of Compressed Natural Gas for the automotive sector and Piped Natural Gas for commercial

and domestic use in 230 cities in a phased manner. The company also plans to strengthen

E&P capability and resources by participating as major partner/operator in domestic E&P

bidding. This would help in developing E&P as a self sustainable business for augmenting

additional supplies of natural gas. This would involve investment both domestic on-land and

offshore fields, with a balance portfolio of developmental and exploratory projects.

The natural gas demand in India is at an inflection point and increase forces are at work that

could dramatically increase the natural gas demand. The present sources of natural gas are

projected to deplete in the coming years and therefore, there is a need to look at new sources

that are coming up. The company is aggressively pursuing gas sourcing options both from the

new domestic sources as well through international sources by way of Pipelines and LNGroutes. Collectively, such a rapid rise in expected demand and realignment of sources of gas

supply will interact to determine the robust future gas structure.

In the area of Petrochemical business, the company is examining the possibility of expansion

of petrochemical complex and exploring Greenfield opportunities in the sector in India and

abroad. On the globalization front, the company is stepping areas having synergy with

existing businesses by entering into new and emerging gas rich countries with focus on

sourcing of gas and participating in downstream activities.

BUSINESS SEGMENT PERFORMANCE

The company has been achieving an all round excellent rating by government of India since a

MOU signing. During the year under review, the segment wise business performance of the

company is as under.


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1) NATURAL GAS

The company owns and operates a network of 7000km of natural gas high pressure trunk

Pipeline. It supplies over 80 million cubic meter of natural gas per day as fuel to power

plants, feedstock for gas based fertilizers plants to over 500 small, medium and large

industrial units to meet their energy and process requirements. The companys share of gas

transmission business is 79% and it holds 70% market share in gas marketing in India.

Natural Gas continues to constitute the core business of the company. The company

continues to have focus on securing gas supplies from international markets.LNG and

transnational Pipelines are the two prevalent modes of cross border gas trade and the

company has been making all efforts to bring Natural Gas in the country.

2) PETROCHEMICALS

The company owns and operates gas based integrated petro chemical plant at Pata, UP with a

capacity of producing 4,10,000 TPA of polymers i.e. HDPE and LLDPE, which has been

enhanced by 1,00,000 TPA from the earlier capacity of 3,10,000 TPA. The company is

currently in the process of setting up of 2,80,000 TPA Assam Petrochemical Complex at a

investment of Rs. 5460 cr. During 2007-08, the production of polymer was 3,86,000 MT and

polymer sales was 3,91,000 MT.

3)LPG TRANSMISSION AND OTHER LIQUID HYDROCARBONS

The company has 7 LPG plants in the country. In the year 2007-08, total liquid hydrocarbon

liquid production was over 1.348 million MT which mainly include 1.043 million MT of

LPG,0.156 million MT of Propane and 0.074 million of Pentane. The company is the only

company in India which owns and operates Pipelines for LPG Transmission. IT has 1900 km

LPG Pipeline network, 1300 km. of which connects western and northern parts of India and

600 km. of network is in the southern part of the country. The LPG transmission system has a

capacity to transport 3.8 MMTPA of LPG. LPG transmission throughput was 2.754 million

MT in the year 2007-08.

4) EXPLORATION AND PRODUCTION

In line the companys strategy and towards integration along the energy chain, E&P activities

had gathered momentum. The gas discoveries in blocks A1 and A3 in Myanmar are maturing

to development stage and various studies preliminary to finalization of the development plan


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and its implementation is underway. Presently, the company is involved in oil and gas

exploration activities over and acreage of 1.7lacs sq km. The company now holds a

participating interest between10% to 80% in 27 oil and gas exploration blocks. Of these 9 are

on land blocks and 18 are off shore blocks.

In India, there are 24 blocks which are in basins such as Mahanadi, Bengal, Gujarat-

Saurashtra, Mumbai, Cambay, Assam and Cauvery. The company has got stake in A1 and A3

blocks in Myanmar and block no. 56 in Oman .A beginning has been made by a company in

earning revenue from E&P activities. One of the on-land block in Cambay basin started

commercial production from Feb 2008 and Rs.6.90 Crore has been generated as revenue.

5) COAL BED METHANE

The company has been participating interest in 3 coal bed methane blocks within the area

of 1561 sq.km. two of which are in Chhattisgarh and one in Jharkhand. These blocks were

awarded to GAIL consortium in CBM-III bidding round.

6) TELECOMMUNICATION

Leveraging on its Pipeline network, the company has build up an OFC network for leasing

ofbandwidth as a carriers carrier. The companys telecom business unit-GAILTEL hasapproximately 13,000 km. network. During the year under review, GAILTEL achieved profit

before tax of Rs.3 cr.

BUSINESS HIGHLIGHTS: Dominant position in the natural gas transmission business with around 75% market

share domestically.

PROMOTERS AND STOCK INFORMATION DETAILS

Key Promoters Govt of India

Market Cap Rs 47758 crores

Promoters Holding 57.34%

% Pledged Nil

Table: 2


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FINANCIAL HIGHLIGHTS: Satisfactory liquidity position with cash / bank balance (including FDs) of Rs 2131

crores as on 31.03.2011

Comfortable leverage owing to more reliance on internal accruals for funding thecapex requirement.

In Rs. Crore FY 10 FY 11 FY 12(Estimate)

Net Sales 24996.4 32458.64 39346.14

OPM % 19.65% 17.05% 16.35%

PAT % 12.56 10.97 10.45

CASH PROFIT 4000.18 4534.17 5180.55

TNW 16601.75 19040.49 22729.05

ATNW 15028.63 17009.57 20698.13

TOL /ATNW 1.52 1.43 NA

TOTAL DEBT / ATNW 0.19 0.23 0.27

DSCR 16.73 19.64 43.3

CURRENT RATIO 1.29 1.23 1.39

Table: 3

MANAGEMENT / INDUSTRY HIGHLIGHTS: Govt. of India holding 57.34% Industry outlook- Neutral (IRG)

PROFITABILITY ANALYSIS:I. PAT MARGIN (%)

PAT margin is also known as net margins. It is a ratio which is used to determine the final

earnings of the company on every one Rupee of sales generated. It is used to determine the

net earnings of the company after paying the production as well as finance expenses. It is a

useful tool in analyzing the companys earnings after tax. For example, a companys sales

could rise, but if costs also rise, that leads to a lower profit margin than what the company


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had when it had lower profits. This is an indication that the company needs to curb its

expenses.

YEAR 2009 2010 2011 2012

PAT MARGIN % 11.79% 12.56% 10.97% 10.45%

Table: 4

Figure: 3

Interpretation:

PAT margin i.e. Profit after tax divided by net sales has shown an increment in 2010and then it has declined YOY but it does mean the profit has declined.

This is an indication that the company needs to curb its expenses.II. EBIDTA MARGIN (%)

EBITDA Margin is also known as operating margin. It is a ratio which is used to

determine operating efficiency of the company. The ratio is used to measure

11.79%12.56%

10.97%10.45%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

2009 2010 2011 2012

PAT MARGIN %

PAT MARGIN %


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companys operating profits i.e. what would be the earnings of the company after

paying of fixed and variable costs of production. The higher the operating margins its

good for the company as it has a higher income available to take care of its other fixed

cost such as interest on debt. One must look at the operating margin ratio on Y-O-Y

and Q-O-Q basis and also compare the same with the peer group.

YEAR 2009 2010 2011 2012

EBIDTA MARGIN% 18.23% 19.65% 17.05% 16.35%

Table: 5

Figure: 6

Interpretation:

The higher the EBITDA margin value, the less operating expenses and the biggercompanys earnings are.

An increasing EBITDA ratio indicates better performance of the company. A higher value would indicate that the company is able to keep its income at a

sufficient level.

18.23%19.65%

17.05%16.35%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2009 2010 2011 2012

EBIDTA MARGIN%

EBIDTA MARGIN%


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PERFORMANCE ANALYSIS

I. CASH PROFIT:

YEARS 2009 2010 2011 2012

CASH PROFIT 3606.37 4000.18 4534.17 5180.55

Table: 7

Figure: 8

Interpretation:

It is the profit i.e. obtained by adding depreciation to PAT (profit after tax). GAIL has consistent increase in its cash profit YoY.

3606.374000.18

4534.17

5180.55

0.00

1000.00

2000.00

3000.00

4000.00

5000.00

6000.00

2009 2010 2011 2012

CASH PROFIT

CASH PROFIT


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GAIL CUSTOMER SATISFACTION

In an effort to increase customer satisfaction and provide a one-point destination to all

customers, GAIL opened its Delhi Branch Office on April 15, 2004. The office was

inaugurated by Chairman and Managing Director Mr Proshanto Banerjee in the presence of

more than 200 customers of R-LNG, Petrochemicals, Propane, SBPS & Pentane products.

Speaking on the occasion, Mr. Banerjee said, The Delhi Branch Office will provide a single

point destination to our customers located in the NCR. The branch office will enable

customers to acquaint themselves with the products and services offered by GAIL.

On the occasion, the online customer ledger was demonstrated to show the dynamic ledgers

of some customers who were present at the inauguration. Mr. Banerjee informed, We have

also put in place an accounting system which will allow our customers to have instantaneous

access to their ledger details over the internet. The customers appreciated the initiatives

being taken by GAIL to improve the customer services.

During 2003-04, the Delhi Branch Office was part of the Corporate Office and had total sales

of Rs 1,805 crore. It catered to 296 customers: 20 for natural gas and R-LNG; 138 for

polymer; 42 for propane; 89 for SBPS and 7 for pentane. The major customers include

Indraprastha Power Generating Company Limited, Maruti Udyog Limited, Kajaria Cermaics,

Parle Biscuits, Honda SIEL, Yamaha Motors Private Limited, OSRAM, Duraline India

Private Limited and Resham Polymers.


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GAIL EMPLOYESS ENGAGEMENT

GAIL has been one of the success stories amongst the PSU over the last two decades and the

relentless pursuit of excellence has been possible only due to GAIL talented and highly

motivated workforce. Since inception, the objective has been to achieve highest levels of

business growth with a lean and thin workforce. GAIL being a dynamic organization believes

that investing in people by means of training and development and by providing growth

opportunities to its employees, the organization would attain greater heights. In fact,

Engaging our employees for superior results" has been one of GAIL success mantras as it

fall under Hewitts Best Employer Zone in terms of the latest Employee Engagement Survey.

This is demonstrated not only by continuously increasing "Year-wise Value added per

employee ratio" but also GAIL has one of the highest profitability per employee ratio

amongst all the PSUs.

GAIL as an organization values commitment, dedication, integrity and sincerity. Right from

the early stages, employees are expected to take initiative and surpass the expectations of the

organization. Freedom to work and respect for individual's opinion are the mantras very

much prevalent in day-to-day working of GAIL. Close working relationship with peers &

superiors, collaborative & supportive working environment and informal work culture are

some of the facets of GAIL which makes it a very exciting company to work for.


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COMPETITIVE ANALYSIS:

The gas transmission has significant natural barrier which include substantialinvestment that would be required by a new entrant in order to duplicate the natural

gas transmission and processing facilities operated by GAIL and the relatively long

lead time before such assets would generate a reasonable return on investment.

Besides, GAIL is better positioned, given its existing asset base, to expand its existing

pipelines at relatively low cost to meet any increase in supply arrangements with all of

the major natural gas producers in India and purchases substantially all the natural gas

produced by ONGC, OIL and the existing JVs operating in India, potential

competitors could face issues in locating adequate supplies of natural gas.

Another natural gas transmission player GSPL (Gujarat state PETRONET Ltd) hasPNGRB to lay three cross country pipelines across India. The length of the said

pipeline is 3800 kms. This could compete with GAILs transmission pipelines thus

impacting the revenues and the overall performance of the company. RGTL is another

private sector player who could provide competition to GAIL in future.

SUBSTITUTION THREATS:

In India, growth in demand for gas has continuously out spaced its supply, leading to a

gas deficit scenario. Going forward, although supply is expected to increase at faster rate,

it will be insufficient to meet the entire demand. Moreover, Natural Gas primarily

competes with alternate fuels such as Naphtha and LPG. The price of natural gas is not

only competitive to these alternative fuels but also less volatile resulting in demand

growth out spacing the supply. Given below the data and graph for demand for natural

gas for various segments in India and supply for natural gas as projected by MoPNG in

India.


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YEARS

2011-12 2012-13 2013-14 2014-15SECTORS(mmtpa)

POWER 149 186 213 243

FERTILISER 57 68 68 68

CITY GAS 18 22 29 37

PETRO CHEM REFINERY 4 4 4 4

Table: 9

Figure: 10

YEARS

2012-13 2013-14 2014-15 2015-16SUPPLIERS

ONGC 25 28 27 24

OIL 3 3 3 3

JVs/ PRIVATE 13 13 12 11

Table: 11

149

186

213

243

5768 68 68

18 2229

37

4 4 4 4

0

50

100

150

200

250

300

2011-12 2012-13 2013-14 2014-15

MMTPA

YEARS

DEMAND FOR NATURAL GAS FOR DIFFERENT SEGMENTS IN

COUNTRY

Power

Fertiliser

City GasPetro Chem Refinery


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Figure: 12

I. BUSINESS MODEL - SWOT ANALYSIS

STRENGTH:

Leadership position in natural gas transmission sector, which is characterized by highentry barriers.

Regulated and stable returns have resulted in healthy profitability and stable cashgeneration in the past.

Benefits derived from downstream integration into Liquefied Petroleum Gas (LPG)and petrochemicals.

Low financial risk profile, considering its strong structure, high profitability, andcomfortable debt protection measures.

High financial flexibility, considering the value of its investments, access to surplusdeposits, and good standing among lenders.

Significant sovereign ownership and strategic importance.

WEAKNESS:

GAIL being a PSU confronts procedural delays from government of India withrespect to certain approvals. This t times delay the companys projects and could act

as an impediment for further growth as well.

25

2827

24

3 3 3 3

13 1312

11

0

5

10

15

20

25

30

2012-13 2013-14 2014-15 2015-16

MMTPA

NATURAL GAS SUPPLY PROJECTION

ONGC

OIL

JV/Pvt


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Since Government of India is a major stakeholder in GAIL, it is exposed to the risk ofsharing the under recoveries with the Oil marketing companies is taken by the

government of India and could differ from time to time. However one of the

advantages enjoyed by GAIL against other upstream players is that as of now, it share

the subsidy burden relating to only LPG not on any other fuel like petrol and diesel.

As per the government of India directives, in order t make LPG affordable to

domestic consumers, GAIL has been sharing the under recoveries of the national Oil

marketing companies, since the 2003-2004. Till FY 11 the total subsidy burden shared

by GAIL amount to Rs 10650 crores. For FY 11 the company had made a provision

of Rs 2111crs on account of sharing the under recoveries of OMCs.

The regulator has revised the gas transmission pricing norms. PNGRB has fixed thereturns for natural gas transmission companies at 12% of ROCE as against of 12%of

ROE earlier. This could affect the revenues from the existing pipelines while it could

enhance the revenue from new pipelines. Since GAIL has a chunk of revenues coming

from old pipelines, its revenue could be impacted in the next few years, in the process

also impacting ROCE.

Since FY 11 the output of the KG D6 block operates by reliance industries has startedto decline. The output has declined to 30 MMSCMD from the level of 50+

MMSCMD. This results inavailability of gas in domestic markets. Since GAIL in the

transmission business, low availability of gas results in lower capacity utilisation and

hence lower revenue. Therefore if KG D6 gas production does not improve in near

future, it could impact the GAILs revenue.

OPPORTUNITIES:

GAIL finds huge gas in KG (Krishna & Godavari) and Mahanadi basin increasing theavailability of natural gas.

Petrochemical industry expected to grow at CAGR of 17% over a period of 3years.This growth need petrochemicals capacity expansion

The overall gas production is set to double within 3 to 4 years thus demand meetingthe supply .This may result in government deregulating the natural gas prices.

Leveraging pipelines for Telecom. Entering into exploration business, which is going to boost the realization.


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Potential for efficiency gains Transmission system upgrading/expansion Strong domestic energy demand growth.

Increasing Demand for LNG. Expanding Indian Natural Gas Market.

THREATS:

Rise in natural gas prices can lead to reduction in margin in petrochemical business.The main problem is that the price of gas is regulated by the government.

Domestic marketing makes the company subject to threat of subsidy burden and

pricing policies of petroleum ministry.

Petrochemical prices may go down in the next two years on account of capacityadditions in the industries.

Rising investment requirement for new upcoming project. Changes in national energy policy. Intense Domestic Competition

Shift to Alternative Sources of Energy like hydro energy, nuclear energy, windenergy, thermal energy.

Fluctuation in Gas and Petrochemical Price.


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CONCLUSION

RevenueThe companysrevenue registered a growth of around 30% in FY2011 over FY2010.This

was mainly backed by improved physical performance in gas transmission segment and

increase in APM gas prices.

Non operating IncomeThe company enjoys dividend and interest income on account of its investment in various

group companies/JVs and through fixed deposits with banks. During FY2011, the

company earned Rs. 301.2 crores and Rs. 91.77 crores from dividend and FD interest

income respectively.

Cash flow / LiquidityThe company liquidity position is satisfactory on account of high net profit earned by it

resulting in high cash accruals. The companys cash & bank balance (including fixed

deposits) stood at Rs 2131croresas on March 31, 2011.

LeverageThe companys leverage ratios are at comfortable level on account of substantial net

profit and low dependence on external debt, with more reliable on internal accruals for

funding the capex requirement. Due to healthy cash generation , GAILs borrowing level

have remained below expectation with TOI/TNW for FY11 at 0.67.GAIL enjoys high

financial flexibility on account of strong financial position and good standing among

lenders. With healthy growth in profits, the companys debt coverage indicators remain

robust.


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BIBLIOGRAPHY AND REFERENCES

Book Referred:

- P.N Varshney- Banking Law & Practices.Websites and Blogs:

- http://www.indiainfoline.com/Markets/Company/Background/Company-Profile/kotakmahindra

http://www.greenbackforex.net/elearn/dev/principal_only_swap.htm

- http://en.wikipedia.org/wiki/Interest_rate_swap- http://www.answers.com/topic/transfer-agent- http://www.investopedia.com/terms/b/bond-trustee.asp#axzz1vu9Uwoq8- http://en.wikipedia.org/wiki/Merchant_banker- www.economictimes.indiatimes.com/kotak-mahindra-bank-

ltd/quotecompare/companyid-12161.cms

- http://www.ibef.org/download/Banking_Story_KOTAK_MAHINDRA.pdfhttp://business-standard.com/content/research_pdf/kmb_110512.pdfhttp://www.gailtenders.in/tender_report.asphttp://www.epa.gov/airquality/oilandgas/basic.html- www.indianfirms.com- www.moneycontrol.com- www.gail.nic.in-

www.gailtenders.in

- http://www.nseindia.com/live_market/dynaContent/live_watch/get_quote/GetQuote.jsp?symbol=GAIL

- http://www.bseindia.com/bseplus/StockReach/StockQuote/Equity/GAIL%20%28INDIA%29%20LTD/GAIL/532155/Scrips

- http://Gailgasannualreport.pdf
http://en.wikipedia.org/wiki/Merchant_bankerhttp://www.economictimes.indiatimes.com/kotak-mahindra-bank-ltd/quotecompare/companyid-12161.cmshttp://www.economictimes.indiatimes.com/kotak-mahindra-bank-ltd/quotecompare/companyid-12161.cmshttp://www.economictimes.indiatimes.com/kotak-mahindra-bank-ltd/quotecompare/companyid-12161.cmshttp://www.economictimes.indiatimes.com/kotak-mahindra-bank-ltd/quotecompare/companyid-12161.cmshttp://www.ibef.org/download/Banking_Story_KOTAK_MAHINDRA.pdfhttp://business-standard.com/content/research_pdf/kmb_110512.pdfhttp://www.gailtenders.in/tender_report.asphttp://www.epa.gov/airquality/oilandgas/basic.htmlhttp://www.indianfirms.com/http://www.moneycontrol.com/http://www.gail.nic.in/http://www.gail.nic.in/http://www.gailtenders.in/http://www.gailtenders.in/http://www.nseindia.com/live_market/dynaContent/live_watch/get_quote/GetQuote.jsp?symbol=GAILhttp://www.nseindia.com/live_market/dynaContent/live_watch/get_quote/GetQuote.jsp?symbol=GAILhttp://www.nseindia.com/live_market/dynaContent/live_watch/get_quote/GetQuote.jsp?symbol=GAILhttp://www.nseindia.com/live_market/dynaContent/live_watch/get_quote/GetQuote.jsp?symbol=GAILhttp://www.bseindia.com/bseplus/StockReach/StockQuote/Equity/GAIL%20%28INDIA%29%20LTD/GAIL/532155/Scripshttp://www.bseindia.com/bseplus/StockReach/StockQuote/Equity/GAIL%20%28INDIA%29%20LTD/GAIL/532155/Scripshttp://www.bseindia.com/bseplus/StockReach/StockQuote/Equity/GAIL%20%28INDIA%29%20LTD/GAIL/532155/Scripshttp://www.bseindia.com/bseplus/StockReach/StockQuote/Equity/GAIL%20%28INDIA%29%20LTD/GAIL/532155/Scripshttp://www.bseindia.com/bseplus/StockReach/StockQuote/Equity/GAIL%20%28INDIA%29%20LTD/GAIL/532155/Scripshttp://www.bseindia.com/bseplus/StockReach/StockQuote/Equity/GAIL%20%28INDIA%29%20LTD/GAIL/532155/Scripshttp://www.nseindia.com/live_market/dynaContent/live_watch/get_quote/GetQuote.jsp?symbol=GAILhttp://www.nseindia.com/live_market/dynaContent/live_watch/get_quote/GetQuote.jsp?symbol=GAILhttp://www.gailtenders.in/http://www.gail.nic.in/http://www.moneycontrol.com/http://www.indianfirms.com/http://www.epa.gov/airquality/oilandgas/basic.htmlhttp://www.gailtenders.in/tender_report.asphttp://business-standard.com/content/research_pdf/kmb_110512.pdfhttp://www.ibef.org/download/Banking_Story_KOTAK_MAHINDRA.pdfhttp://www.economictimes.indiatimes.com/kotak-mahindra-bank-ltd/quotecompare/companyid-12161.cmshttp://www.economictimes.indiatimes.com/kotak-mahindra-bank-ltd/quotecompare/companyid-12161.cmshttp://en.wikipedia.org/wiki/Merchant_banker

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