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GAS & BEYOND
A Draft Report On GAIL (India) Ltd. Subject: Business Policy & Straegic Management Prof. Dinesh Likhi
SUBMITTED BY Ajay sahu (M08-003) Aayush Garg (M08-014)
Sahil Singla (M-08-034) Shailendra Choudhary (M-08-039)
1) Indian natural gas industry – an overview 2) Gas Authority of India Ltd. (GAIL) - Introduction i) Mission, Vision & Objective ii) PESTEL Analysis iii) SWOT Analysis iv) Porter’s Five Force model analyses v) 3) GAIL- Value Chain Analysis i) Inbound Activities ii) Out bound Activates iii) Products, Marketing & Sales iv) Infrastructure v) Human Resource Management vi) Research & Development 4) GAIL – Core Competency analysis 5) GAIL – Financial Analysis
6) GAIL – Comparison with Peers 7) GAIL –GE Matrix 8) GAIL –Industry Attractiveness 9) GAIL –As A Business Unit 10)GAIL- Strategy Bibliography
Indian Natural Gas Industry – an overview
There has been a shift in the global energy fuel mix towards an increased role for natural gas. Attractive for its cleaner and more efficient combustion relative to other fossil fuels, gas has assumed a significant role . In India gas is supplied to various industries like fertilizer, power plants etc. and also used for city gas distribution.
Natural gas Consumption in India
Other 5% Industr y
Total Gas market: 26bcm
As seen from the projections (Graph) consumption of natural gas will increase threefold from 60 bcm nearly 180bcm by 2020.
Indian Natural Gas Demand Projections for 2020
So, the size of the Indian gas market is expected to grow tremendously in future.
GAS AUTHORITY OF INDIA LIMITED
Introduction GAIL (India) Limited, is India's flagship Natural Gas company, integrating all aspects of the Natural Gas value chain (including Exploration & Production, Processing, Transmission, Distribution and Marketing) and its related services. In a rapidly changing scenario. GAIL is also expanding its business to become a player in the International Market.
“Be the Leading Company in Natural Gas and beyond, with Global Focus, Committed to Customer Care, and Value Creation for all Stakeholders and Environmental Responsibility” Key Elements of GAIL's Vision
Be the undisputed leader in the Natural Gas market in India and a significant player in the global natural gas industry, by growing aggressively while maintaining the highest level of operating standards Natural Gas and Beyond Focus on all aspects of the Natural Gas value chain and beyond including Exploration, Production, Transmission, Marketing, Extraction, Processing, Distribution, utilization including Petrochemicals and Power and Natural Gas related infrastructure, products and services Global Focus Create and strengthen significant global presence to pursue strategic, attractive opportunities that leverage GAIL's capabilities while effectively managing business risks Customer Care Anticipate and exceed customer expectations through the provision of highest quality infrastructure, products and services Value Creation for All Stakeholders GAIL will create superior value for all stakeholders including shareholders, customers, employees, business partners, surrounding communities and the nation Environmental Responsibility GAIL is committed to operational excellence in all we do with a focus on continuous efforts to improve environmental performance for ourselves and our customers and will be sensitive to the needs of the environment in all our actions Mission To accelerate and optimize the effective and economic use of Natural Gas and its fractions to the benefit of national economy
Strategy or Direction
“The company aims to further expand its core business of Natural Gas
Transmission & Marketing, to capture larger share of the growing market. The company wishes to move upstream to secure gas supplies for the core transmission business. Additionally, investments in petrochemicals and city gas distribution are being planned to enhance margins and increase sources of revenue. Further, the company is exploring and investing in international opportunities with a strategic rationale of gaining international presence”. OBJECTIVE To create awareness among the industries about the need, importance, benefits and methods of energy conservation To provide technical advisory services for promoting energy conservation, alternate energy source selection within the provisions of existing statutory regulators To conduct techno-commercial meetings and seminars/workshops for customers including prospective customers The energy intensity* for India is very high 3.7 times that for Japan, 1.6 times that for USA the potential for energy conservation in India, across all sectors, is estimated to be as high as 23%. PESTEL Analysis Political Environment GOVERNMENT INSTABILITYGovernment in India is currently stable even in the case of a bit of instability in the govt. (because of a multi party or coalition govt. being formed) it shouldn’t much effect the growth of natural gas industry in India. As every party has energy security as a major issue in their manifesto and natural gas being a dominant factor in the energy security of the country every govt. would try to promote the sector. So on likely happening Govt. instability: Medium Impact on Growth of gas industry: Low negative TAXATION POLICY
Govt. is mulling over giving natural gas a declared goods status in this year’s budget which would ensure that no state is charging more than 4% sales tax on natural gas this would further make the industry more attractive. So on likely happening of changing in taxation: Medium Impact on Growth of gas industry: Medium Positive GAS UTILIZATION POLICY Govt. decides on priority of each sector, customers are decided on as per sector based priority a if there is a company of higher priority sector present and gas with existing pipe line cant be shifted to that company or if within six months pipeline to that company can be developed then a company with lower sector weightage can not be given the gas. This does not impact the company much as supply is short and demand is more but impact would become considerable with the expiry of current gas utilization policy in 2012.Also supply is expected to exceed demand by 2012 so this would increase the competition amongst the sector also market will become larger so impact will be both Negative and positive. But as per sect oral impact it would be positive. So on likely happening of changing in GAS UTILIZTION POLICY: HIGH Impact on Growth of gas industry: High Positive PRICING As per pricing of gas is concerned it is more or less govt. determined for sectors like power, fertilizers etc. For city gas distribution pricing policy is bid determined as of now for initial stage 5 years where the pipe laying company has the hold of the market. Gas supplied to power and fertilizer sectors are highly subsidized by the govt. because mainly govt. companies are its consumers it is unlikely that this subsidy which is being given to these sectors are taken off because if it happens than it would make their operations as uneconomical. So on likely happening of removal price control: Low Impact on Growth of gas industry: Medium positive Political Govt instability Taxation Policy Gas utilization Policy Pricing Likely Happening 0.5 0.7 0.9 0.3 Impact 4 7 8 7 Multiplier 2 4.9 7.2 2.1
Scaling Down ECONOMIC FACTORS
BUSINESS CYCLE As gas distribution business is more of a fixed supply business so business cycle does not have much of impact. Impact on gas business is linked to the impact on fertilizers and power business. Impact on industry: Very low GDP/GNP As this industry forms the major pillar of the growth of the country it is likely to grow very fast if the country is growing very fast but even slow growth in the country would not highly slowdown this industry. Chances of very fast growth of the country: Medium Impact on gas industry: Medium positive Economic Business Cycle GDP/GNP Scaling Down SOCIOCULTURAL CONSUMERISM People are readily accepting the piped natural gas as a substitute to LPG because it is Priced much cheaper than regular LPG cylinder also hassle of booking for an LPG cylinder is not there. Chances of acceptance: HIGH Impact on Industry: Medium Positive LIFESTYLE CHANGES/EDUCATION With growth of the country lifestyle changes and education are reaching in the non metropolitan cities and acceptability of PNG would increase. Likely Happening 0.5 0.7 Impact Multiplier 5 2.5 7 4.9 7.4 6.166667
Chances of acceptance: HIGH Impact on Industry: Low Positive
Socio Cultural Consumerism Lifestyle Changes/Education Scaling Down
Likely Happening Impact Multiplier 0.9 6 5.4 0.9 7 6.3 11.7 6.5
TECHNOLOGICAL NEW DISCOVERIES DEVELOPMENT Technology is into developmental stage for getting cleaner fuel. But it is least likely to be developed by 2012. Chances of becoming of renewable sources of energy commercial: Very Low Impact on Industry: Medium Negative
SPEED OF TECHNOLOGY TRANSFER/OBSOLOSENCE Speed of Obsolescence of natural gas in power/fertilizers etc is low as of now because of investment in changing existing setup and also commercial renewable resources of energy are not feasible. Chances of becoming of renewable sources of energy commercial: Very Low Impact on Industry: Medium Negative Socio Cultural New Discoveries Devpt. Likely Happening Impact Multiplier 0.1 4 0.4
Speed Of Technology Transfer Scaling Down
0.4 0.8 4
ENVIORMENTAL ENVIORMENT PROTECTION LAWS Environment protection laws are expected to become stricter by2012 this would have a positive impact on natural gas industry it being a cleaner fuel. Chances Environmental protection laws becoming stricter: Medium Impact on Industry: Medium positive Scaled Down Value = 8 Impact Political Economic Socio Cultural Technological Enviornmental 6.75 6.16 6.5 4 8 Weight Multiplier 0.3 2.025 0.1 0.616 0.05 0.325 0.15 0.6 0.4 3.2 6.766
3.5 3 2.5 2 1.5 1 0.5 0
Po liti ca l ul tu ra l Ec on om og ica En vio rn m en ta l ic l
Opportunities Coming Out of PEST Analysis • • • • Market is expected to grow at a very fast rate with economy growth Stringent environmental policy could further enhance the growth There is a good opportunity coming up in City Gas Distribution Sector Relaxation of govt. regulation would give a big chance of making good profits.
Te ch no l
1) GAIL is a state owned company. So it presents GAIL with all the support it needs directly from the government to lay its distribution network and grow its capacity by transmitting various products across the country.
2) GAIL has a strong Infrastructure which consists of pipelines and various offices in India. This increases its capacity to serve more people and also improves its efficiency as it can supply different products across to users in less time through the pipelines.
3) As GAIL has such a wide distribution network of pipelines across the country , it leaves its competitors with little choice. It makes the Industry hard for the competitor to enter.
4) It uses top technology. The major benefits of GAIL's IT initiatives include cost reduction, operational efficiency, employee satisfaction, faster decision making, better service to customers, better vendor management, seamless and faster information sharing, quick response time with better and faster communication.
1) GAIL does not has a gas supply of its own. It takes gas from ONGC & OIL. So in future it can face hard times, if GAIL doesn’t find out secured supply lines of Natural gas soon. So, though GAIL is secure today, unless it beefs up its gas
supplies at good prices, it could lose some competitive advantage to Reliance in the coming years.
2) State-owned – Since it is a state owned company, it has to follow certain guidelines laid by the state or the government. The prices of the gas are fixed & GAIL has to sell the gas at that fixed price. OPPORTUNITIES • Market is expected to grow at a very fast rate with economy growth • Stringent environmental policy could further enhance the growth • There is a good opportunity coming up in City Gas Distribution Sector • Relaxation of govt. regulation would give a big chance of making good profits. THREATS • There is a major threat of shortage of long term sustainable supplies of natural gas. • Threat of high competitive rivalry is there with big players like reliance going into downward integration. • Threat of substitute alternate sources of energy is there but it is not very high in short run.
Porters Five Forces
Scale 0 means lowsest barrier 10 means highest barrier
1)Barriers to Entry a)Economies Of Scale This requirement in gas industry is very high. Scale rating 9 Weightage 0.1 b) Capital Requirements for Entry Capital requirements for entering the industry are high. Scale rating 9 Weightage 0.2 c) Excess to supply Initially for a company it is very difficult to secure access to the natural gas. Scale rating 8 Weightage 0.2 d)Customer Loyalty Once customer has got a connection from one supplier it is difficult to change. Scale rating 10 Weightage 0.25 e)Experience Experience is a major factor in laying pipelines it is also given weightage in NELP bid. Scale rating 9 Weightage 0.2 f)Product Differentiation Product Differentiation is low so it is very difficult for a new player to give something new to the customer. Scale rating 7
Economies Of Scale Capital Requirements for Entry Excess to supply Customer Loyalty Experience Product Differentiation BARRIER TO ENTRY
3 2.5 2 1.5 1 0.5 0
9 9 8 10 9 7
0.1 0.2 0.2 0.25 0.2 0.05
0.9 1.8 1.6 2.5 1.8 0.35 8.95
2)THREAT OF SUBSITUTES a)Product for Product Substitution In Power Plants threat of substituting natural gas is there but it is very difficult for an existing power plant to change the technology as such. And chances are very rare that such a technology will
Ec C ap on ita om lR ie eq s O ui fS re m ca en le ts fo Ex rE ce nt ss ry to C su us pp to ly m er Lo ya lty Pr Ex od pe uc rie tD nc iff e er en tia ti o n
Scale rating 8 3)BUYER POWER Buyers are usually captive buyers and generally impose low power. But the industry can not change prices because of govt. rulings. Scale rating 8 4)SUPPLIER POWER a)High Switching Costs Switching costs are high for the pipeline industry. Scale rating 2 Weightage 0.5 b) Possible Chances of Forward Integration Chances of forward integration are medium in this case. Companies need to secure there supply. Scale rating 5 Weightage 0.5 High Switching Costs Possible Chances of Forward Integration Supplier Power 2 5 0.5 0.5 1 2.5 3.5
4) COMPETITOR RIVALRY a)Competitors In Balance The two big competitors reliance and gail are somewhat in balance in one or other aspect. Gail has got advantage with core competency in the sector reliance has big money power.
Scale rating 6 Weightage 0.4 b) High Fixed Costs There are high fixed costs involved.Very huge fixed costs in piping infrastructure pushes that competitor which enters once in the market stays there for long time. Scale rating 4 Weightage 0.4 c) Markets Undifferentiated Markets are somewhat undifferentiated for all players. Scale rating 4 Weightage 0.2
Competitors In Balance High Fixed Costs Markets Undifferentiated COMPETITOR RIVALRY INDUSTRY PROFITABILITY BARRIER TO ENTRY THREAT OF SUBSITUTES BUYER POWER SUPPLIER POWER COMPETITOR RIVALRY INDUSTRY PROFITIABILITY
6 4 4
0.4 0.4 0.2
2.4 1.6 0.8 4.8
8.95 8 8 3.5 4.8
0.2 0.2 0.3 0.2 0.1
1.79 1.6 2.4 0.7 0.48 6.97
3 2.5 2 1.5 1 0.5 0 BARRIER TO ENTRY THREAT OF SUBSITUTES BUYER POWER SUPPLIER POWER COMPETITOR RIVALRY
Industry Attractiveness is high on the basis of porter model is high it comes out to be 6.7.
Major Threats Emerging out of Porters Model • There is a major threat of shortage of long term sustainable supplies of natural gas. • Threat of high competitive rivalry is there with big players like reliance going into downward integration. • Threat of substitute alternate sources of energy is there but it is not very high in short run. Value Chain Analysis(Primary Activities) GAIL is involved in all aspects of the Natural Gas value chain, which include: Exploration & Production, Processing, Transmission, Distribution and Marketing, and its related services.
INBOUND ACTIVITIES: Besides getting sources for Natural Gas, GAIL had various other reasons to get into E&P: • Integration in supply-chain • Large gap in Gas demand and supply • National Gas security • Balancing of Business portfolio • Global opportunity GAIL started its Exploration & Production (E&P) unit in August 2001.At start, they won 12 blocks in four NELP rounds. GAIL also entered into international E&P venture when it acquired A-1 block in Myanmar. Its E&P activities got a great impetus in 2004, with the dual strike of gas in Myanmar and oil in Cambay. Exploration Blocks GAIL is currently participating in 27 exploration blocks, in Basins such as Mahanadi, Mumbai, Cambay, Assam-Akaran, Tripura Fold Belt and Cauvery. GAIL has partnership in these blocks with various companies such as ONGCL, GSPCL, OIL, Hardy Exploration & Production, Petrogas, JOGPL, Daewoo, OVL, IOCL, Korea Gas Corporation, Hallworthy, BPCL, HPCL and Silverwave. GAIL also has stake in 3 overseas blocks (A-1 and A-3 blocks in Myanmar and Block-56 in Oman). GAIL consortia have been awarded three CBM blocks under CBM-III bidding round by Government of India. At present, GAIL has Participating Interest in many E&P blocks. 3 of these blocks were awarded during NELP-II, 2 during NELP-IV, 3 during NELP-V and 15 during NELP-VI. GAIL has farmed-in three blocks. The total area for E&P Blocks is 172275 KM2. GAIL is a joint operator in an onland block in Rajasthan awarded during NELP-VI bidding round. Above exploration blocks are in various stages of exploration. Hydrocarbon discoveries have been made in 6 E&P blocks. The blocks are: MN-OSN-2000/2,
CB-ONN-2000/1, Block A1 Myanmar, Block A3 Myanmar, CY-OS/2 and CYONN-2002/1. AdvantageSo all these blocks could provide an enormous and a steady source of Natural gas to GAIL for all its activities like manufacturing CNG,PNG and distributing it through its wide network of pipelines (GAIL’s core competency) and also helped GAIL to reduce the large gap of natural gas demand & supply. Thus, these blocks made GAIL the primary player in this industry. OPERATIONS GAIL’s operations consists of: 1) Transportation of gas (CNG,PNG and other products ) to end customers through its wide pipeline network. GAIL has pipelines of huge capacities .The gas is compressed & then transported to various power plants, fertilizer plants, and industries in the country. It also provide access to our pipelines, to third parties, for the transmission of Natural Gas. 2) Products: GAIL produces LPG through fractionation. It produces LPG at seven fractionating units that are located in Madhya Pradesh ,UP, Gujarat, Maharashtra and Assam During 2006-2007 GAIL had produced about 10,25,900 MT (12 %) LPG against total all-India indigenous LPG production of 84,04,000 MT . GAIL manufacturers & markets downstream HDPE & LLDPE from natural gas cracking at its Pata (Uttar Pradesh state, India) unit. The unit initially had a capacity of 2,60,000 MTPA of HDPE and LLDPE, which was later increased to 4,10,000 MTPA by adding another dedicated HDPE downstream polymerization unit of 1,00,000 MTPA . GAIL is the only HDPE/LLDPE plant operating in Northern India and has a dominant market share in North India. It markets its grades under the brand names G- Lex & G- Lene. Besides LPG it also manufacturers CNG,PNG,LNG & petrochemicals.
GAIL is a constituent member of National Gas Hydrate Programme (NGHP) which is coordinated for the exploration and development of gas hydrates resources. GAIL representatives actively participated during NGHP Coring / Drilling programme and in Gas Hydrate Characterization studies. Advantage – 1) So GAIL produces various products & hence transports them through the pipelines across the country. This has increased the reach of GAIL i.e it has helped GAIL to increase its market share . 2) Growing demographics ( Distribution network & mergers)
OUTBOUND ACTIVITIES: GAIL has a huge pipeline network for distribution of natural gas throughout India. Natural gas & various other products produced by GAIL reach end consumer via the pipeline network. 1) Gas Transmission: HVJ Hazira-Vijaipur-Jagdishpur (HVJ) gas pipeline through Gujarat, Madhya Pradesh, Rajasthan, Uttar Pradesh, Haryana and Delhi was laid by GAIL. Currently the HVJ pipeline is over 2800 km long. The HVJ pipeline system consists of receiving / dispatch terminals for the supply of metered gas, compressor stations for boosting the pressure of gas, the SCADA system to provide central monitoring and control and a dedicated GAILTELmunications system to provide reliable voice and data communication.
2) Gas supplied by GAIL to retail gas distributors serves more than 3,00,000 automobiles as Compressed Natural Gas (CNG) and over 3,30,000 households as
Piped Natural Gas (PNG) in the cities of New Delhi, Mumbai, Vadodara, Vijaywada, Hyderabad, Kanpur, Agra, Lucknow.
3) Piped Natural Gas (PNG): The Distribution system supplies PNG to
consumers in the city for various applications. Sector-wise Applications Domestic Sector Cooking Space heating Water heating Air Conditioning Commercial Sector Cooking Space heating Water heating Air Conditioning Steam Generation 4) Compressed Natural Gas (CNG): The distribution system also supplies CNG to city stations (CNG). Thus, the compressed form of natural gas is used as a fuel for transportation purposes. GAIL Progress: Under its City Gas Distribution project in Delhi, Indraprastha Gas Ltd, a JV of GAIL (India) Ltd, Bharat Petroleum Corporation and the Government of NCT of Delhi, is supplying Piped Natural Gas (PNG) to 15,000 Domestic and 91 Commercial Consumers. Mahanagar Gas Ltd a JV of GAIL (India) Ltd, British Gas and the Government of Maharashtra, is supplying PNG to 1.3Lacs Domestic and 500 Commercial Consumers and 40 Industrial consumers in Mumbai. GAIL has set up 115 CNG stations in Delhi to cater to 9121 buses, 5029 mini buses, 14,580 cars / taxies and 51,596 scooters / autos. In Mumbai 51 CNG stations are constructed to cater to 46 buses, 42,000 cars/taxies and 52,000 Scooters/Autos. Industrial Sector Power generation Dryers Furnaces Boilers
GAIL's LPG transmission business includes the 1927-km LPG pipeline networks that connect the Western, Northern and Southern part of India. These include the world's longest exclusive LPG pipeline from Jamnagar, Gujarat, to Loni, near Delhi (another 70 km has been added to this system between Kandla and Samakhiali, in Gujarat, to facilitate the transportation of LPG imported at Kandla port). GAIL's LPG pipelines can transport 3.8 MMTPA of LPG, and have the capacity to supply more than 20% of the LPG consumed in the country. Advantage – Distribution of various products through the pipelines has helped GAIL to strengthen its market position by raising its revenue year on year.
MARKETING & SALES • Petrochemical Marketing: 1. Setting up of Zonal Offices all around India. 2. Preparation of Sales Policy for Polymer marketing. 3. Evaluation of performance and rewarding the Consignment Stockiest. 4. Felicitation of Top Customers. 5. Technical services to all our customers through GAIL Polymer Technology Centre (GPTC) • LPG/LHC Marketing 1. Identification of customers interested in LHC products and vetting their documents whether they have necessary licenses from statutory boards. 2. Registration and Approval of companies to whom LHC is to be marketed. 3. Regular check of the functions of companies to ensure that they are not involved in misuse of LHC products and if found guilty then termination of contract.
4. Marketing of LPG through major LPG Transmission pipelines i.e. JLPL and VSPL. GAIL Products Propane: Sales & Marketing GAIL Propane is supplied from following LPG Plants of GAIL : • PATA in Auriaya District (Uttar Pradesh) PATA enjoys sales tax exemption.A production of~70,000 MT was recorded for the FY 2006-07. • VIJAIPUR in Guna District (Madhya Pradesh) A production of~110,000 MT was recorded for the FY 2006-07. GAIL has Zonal offices across India located at Ahmedabad, Bhopal, Chennai, Chandigarh, Hyderabad, Jaipur, Kolkatta, Kochi, Lucknow & Mumbai and branch office at Delhi and Bangalore. For product information, these Zonal Offices may be contacted. Each Zonal Offices has a dedicated Retail Marketing sales force for undertaking the sales & marketing activities of Liquid Hydrocarbon products. Pentane: Sales & Marketing GAIL Pentane is supplied from the company's LPG Plants at: • PATA in Auriaya District (Uttar Pradesh) • VIJAIPUR in Guna District (Madhya Pradesh) • Gandhar, Distt: Bharuch, Gujarat • GAIL Pentane is supplied ex-Production Units in customers own arranged transportation. This way, Customers get the flexibility to arrange transportation of their choice in most cost effective manner and convenience. SBPS: Sales & Marketing GAIL's Special Boiling Point Solvent (SBPS) is supplied from its LPG plants at: • Gandhar , Distt: Bharuch, Gujarat • Lakwa , Distt: Shivsagar, Assam : The plant is located at a distance of about 40 Km from Sibsagar in the State of Assam. The plant is ideally located for the North-East States and state of West Bengal.A production of ~ 7,000 MT was recorded for the FY 2006-07.
Information Systems GAIL has undertaken a number of IT initiatives which have significantly contributed to cost reduction and operational efficiency. It doesn’t want to rely on reams of papers and files and loads of unclassified information. GAIL’s aspires to become a techno savvy and efficient company.
Initiatives include: a) Personal e-Banking b) Organizational e-Banking (e-Receivables and e-Payments) c) E-Investment of Surplus funds d) Paperless FAX e) Bill Watch System f) Enterprise Resource Planning Strength – 1) The marketing & sales steps mentioned above have helped GAIL to capture 70% share in the Gas marketing business and establish itself as a reliable transporter or supplier of gas amongst the industries & other users of gas. 2) It also uses Top technology for its internal functioning as mentioned above.
Value Chain Analysis(Support Activities) Infrastructure ➢ GAIL has 6800 kms of Natural gas pipelines spread across 11 states in India. ➢ It has 1922 kms of LPG pipelines across India.
➢ It has 7 LPG Gas Processing Units to produce 1.2 MMTPA of LPG and other liquid hydrocarbons . ➢ It increased its E&P blocks to 29 recently. It also acquired 3 CBM blocks in CBM III bidding round.
GAIL has 8 Joint Ventures in Gas retailing (IGL, MGL, BGL, TNGCL, CUGL, GGL, MNGL, AGCL) . ➢ GAIL has equity in 3 Gas Retailing companies in Egypt .It also has equity in China for gas retailing.
➢ It is partner in A1and A3 E&P blocks in Myanmar. It is also a partner in Oman in E& P block.
It has a 100% subsidiary in Singapore with the name GAIL Global Singapore (Pty) Ltd .
GAIL is a joint operator (with GSPC) in On land block in Rajasthan.
➢ It has a Petrochemical plant in Pata which produces 310,000 TPA of Polyethylene. ➢ GAIL has established training institutes in India at Noida & Jaipur. They have been set up as Intellectual wing to equip human resources with necessary Knowledge, Skills and Attitude (KSA).
These institutes have: • Training and Development: Natural Gas, LPG & Petrochemicals, City Gas / CNG • A World Class facility for training and development
Advantage – Gail’s infrastructure has made it a strategic player in the industry with no other competitor near it. The infrastructure is the backbone of GAIL. Through its infrastructure it is trying to increase its market share in distribution & marketing of gas. It is also establishing footprints outside India and trying to become a global player. Human Resource Management GAIL has taken various initiatives and has been continuously up-grading the existing systems for proper nurturing of human capital. Programmes: ➢ GAIL introduced online application provision for prospective candidates , as an improvement to recruitment practices. Because of which, the time involved in receiving and sorting of applications, conducting trade test & interviews has been considerably reduced. ➢ It organised an online executive feedback survey titled ‘Right man at Right job’. The information collected with regard to nature of jobs performed by employees in a particular department, location , preference of location etc was mapped for rationalization of manpower. ➢ Electronic appraisal system was introduced in Performance Management System for non-executives. ➢ GAIL opened training institutes at several places within the country. GAIL Training Institutes (GTI) at Noida & Jaipur have been set up as Intellectual wing to equip human resources with necessary Knowledge, Skills and Attitude (KSA). ➢ GTI is also pursuing opportunities to offer training programmes to Indian & Overseas companies to convert itself into a Profit Centre. ➢ It gives training to its employees , both within the country and outside. It provides international exposure to its senior level executives. Executives of E-7 and above would be sent for training abroad once in four years. ➢ Executives/non-executives at all level are sent for foreign training in functional areas specific to their job requirement like vendor training of equipments and also need based foreign training.
➢ GAIL also sponsors its employees for conference and seminars within India and abroad on contemporary subjects to provide them opportunity of learning & interaction with the experts of various technical and management fields. The above programmes cater to the manpower and technology development needs of Indian Gas sectors, particularly in the field of Natural Gas. Advantage – 1) The above initiatives creates a total quality culture in terms of Human capital. 2) It provides optimum utilization of manpower resources and employee satisfaction R& D and Technology Development GAIL is an IT savvy organisation and has continuously adopted IT solutions and also made significant moves to develop its R&D expertise in order to keep pace with the fast changing industry. The initiatives include : ➢ GAIL has signed pact with Chinese companies like SINOPEC, CNOOC International. Together they will collaborate in Research & Development (R&D) activities in the natural gas and related sector. ➢ It has launched e-tendering portal in 2007 and a large number of domestic and international tenders are being processed through this transparent and secured system across all offices. ➢ GAIL has introduced many online applications within the organisation like Online Recruitment, e-Performance Management System (e-PMS), Grievance Redressal System, Online Vigilance Complaint Registration System, e-Budgeting System which has led to enhancing transparency, ready and structured availability of information, enhancing speed of operation and facilitating efficient decision making. ➢ Another major initiative towards IT risk management was to set up the state-of- the-art 3-way Disaster Recovery (DR) Centre at Jaipur. This
will ensure resumption of business operations in the eventuality of any disaster like Fire, Flood, Earthquake, Cyber Attack etc. in the primary data centre at Noida. ➢ GAIL implemented SAP-ERP in 2005 to cover business functions like Marketing and Sales, Collections and Payments, Finance Operations, Material Management, Human Resource etc. The entire ERP infrastructure is hosted at GAIL’s state-of-the-art datacenter at Noida. A low capacity standby ERP server is placed at a separate location to cater to the requirement for 200 critical users, in case of any contingency at the Primary datacenter at Noida. ➢ Other initiatives include e-banking for employees ,e-Investment of surplus funds, Paperless FAX, Bill Watch System and File Watch System. Competitive Advantage The major benefits of GAIL's IT initiatives include cost reduction, operational efficiency, employee satisfaction, faster decision making, better service to customers, better vendor management, seamless and faster information sharing, quick response time with better and faster communication.
Procurement Only an integrated player will emerge as winner in the CGD, who will have an assured supply of natural gas and a wide pipeline network .GAIL only has a better pipeline network as of now. GAIL is not into production or exploration of gas. So it doesn’t produce gas, rather it only distributes. It buys most of its gas from fellow PSUs like ONGC and Oil India, and a small amount from private players like Cairn Energy.
GAIL will get all the gas produced by ONGC from its Western fields, as well as the new gas that will start flowing from the KG and Mahanadi basins. GAIL has signed a MOU with Reliance for getting some part of the KG basin gas. For now, GAIL is fine—in fact, better than Reliance—on the gas supply front. Most of the gas being supplied by ONGC and Oil India to it is from blocks given out before the New Exploration Licensing Policy (NELP) came into force in 1997. The price of this gas is fixed by the government, through the administered pricing mechanism (APM). As a result, it is very cheap—$1.7-2 per million metric British thermal units (mmbtu), less than half the $4.24 from the Reliance fields or $4.74 per mmbtu currently available from Panna-Mukta-Tapti field. And it is much cheaper than imported liquefied natural gas (LNG), whose prices vary from $9-24 mmbtu depending on crude prices. At present, GAIL meets 73% of its requirements through APM gas, which will enable it to price gas lower than Reliance. This is critical because, in evaluating CGD bids, gas pricing gets 40% weightage, the maximum of the four parameters. Till such time as GAIL gets cheap APM gas, it can undercut Reliance. But as production from ONGC and Oil India fields dip because of age and GAIL’s needs increase, the share of APM gas in the GAIL’s supplies is expected to fall to 27% after 10-12 years. It will then have to buy from competitors like Reliance or depend on crude prices (for LNG imports).
Weakness – GAIL does not has a gas supply of its own. It takes gas from ONGC & OIL. So in future it can face hard times, if GAIL doesn’t find out secured supply lines of Natural gas soon. So, though GAIL is secure today, unless it beefs up its gas supplies at good prices, it could lose some competitive advantage to Reliance in the coming years. Advantage - The urgency to lock gas supplies has even led GAIL into exploration for the first time—it bagged about 30 blocks through competitive bidding, which it is likely to take up with a partner. It can be huge advantage to GAIL as it will become a fully integrated company with assured gas supply and with huge pipeline networks
Core Competency Analysis
The core competency of Gail India Ltd is pipeline transmission and distribution. As we know GAIL is the undisputed leader of natural gas transmission and distribution in India. Various products are transported by the pipelines. GAIL has a market share of 78% of the gas transmission business and 70% of the gas marketing business in India. GAIL's vast operations and projects include: • 6196 kms of Natural Gas high-pressure trunk pipelines • Trunk Pipelines with the capacity to carry 148 MMSCMD of Natural Gas across India • Supplying nearly 70 million cubic metres of Natural Gas per day as fuel to power plants for generation of about 5200 MW of power, as feedstock for gas-based fertilizer plants to produce about 11 MMTPA of urea and to over 500 other small, medium and large industrial units to meet their energy and process requirements. • Our 2,800 km long Hazira-Vijaipur-Jagdishpur (HVJ) pipeline and 610 km Dahej-Vijaipur pipeline (DVPL), between them, cater to all the gas based power plants, fertilizer plants, and industries along the entire West-North corridor of India. Currently GAIL transports about 8 MMSCMD of Natural Gas on behalf of various shippers. Gas Transmission : Projects Underway 1) Dahej Vijaipur Pipeline Project 2) Dahej Uran Pipeline Project 3) South Gujarat Pipeline Project 4) HVJ Phase III Pipeline Project
5) Project Blue Sky 6) Chaisa Gurgoan Pipeline Project 7) Vizag Secunderabad LPG Pipeline Project
Growing - Companies are judged by their sales and earnings growth rates than on the absolute value of their sales and earnings. If we carry out an analysis of GAIL we ll find that company’s sales increased almost 7% in 2006 then in 2007 it decrease minutely (-1.94%) again in 2008 sales increase around 12.32 %( compare to 2003). In 2007 its many project got completed and they started to yield sales in 2008 . so in 2008 its sales got increased .
Year Sales Var % Profit After Tax Var % 2008/03 18,012.74 12.32 2,601.46 9 2007/03 16,036.56 -1.94 2,386.67 3.32 2006/03 16,354.59 20.21 2,310.07 18.23 2005/03 13,605.51 13.85 -1,953.91 4.52 --1,869.34 2004/03 11,950.55 -
Profitability of company –
Investors prefer companies that increase profit margins -- the percentage of sales that they keep -- every year. This is accomplished either by lowering expenses or raising prices. In 2005 GAIL sensed the crisis for communication carrier line, there was huge demand for so GAILTAIL hiked the transmission charges & thus its PAT increased , but after 2007 cellular market got quite saturated ,& it expand towards the hinterland of country where GAILTAIL has no network , so it was a quite short term profit , beside this in 2007 GAIL hikes the prices of Transmission of GAS ( the main reson behind increased profit in 2008.)
Company’s financial health The financial health of a company is dependent on a combination of profitability, short-term liquidity and long term liquidity. Companies, which are profitable, but have poor short term or long term liquidity measures, do not survive the troughs of the trade cycle. Also firms, which are not profitable but are cash rich, do not survive in the long term either. Such companies are taken over for their cash flow or by others who believe that they can improve the profitability of the business. Thus, those companies that do succeed and survive over the long term have a wellrounded financial profile, and perform well in all aspects of financial analysis. Profitability ratios reflect the business environment of the time.
Return on asset ROA(%) Return on Equity ROE(%) Mar 2008 19.27 21.33 Mar 2007 19.39 22.34 Mar 2006 20.52 24.84 Mar 2006 19.34 24.32 Mar 2004 39.03 50.22
Return on capital emloyed ROCE(%)
Net profit margin
Short-term liquidity is the ability of the company to meet its short-term financial commitments. Short-term liquidity ratios measure the relationship between current liabilities and current assets. Current assets are stocks and work-in-progress, debtors and cash that would normally be re-circulated to pay current liabilities. The ideal ratio 1:1. But a very high ratio indicates that the company is unable to manage its cash properly.
The key short-term liquidity ratios are: 2008 Total Debt/Equity(%) Current Ratio(x) Quick Ratio(x) Interest Cover(x) Total Debt/Mcap(%) 9.73 3.10 2.93 49.45 5.29 2007 11.74 3.00 2.78 27.71 8.97 2006 19.22 3.88 3.73 28.93 10.68 2005 23.16 2.36 2.18 22.41 16.72 2004 28.66 1.79 1.58 21.40 17.76
Efficiency Ratios Fixed Capital/Sales(x) Receivable days Inventory Days Payable days 85.82 18.31 11.02 49.72 88.85 17.03 11.42 48.31 96.44 19.34 11.83 55.44 98.56 19.97 12.37 54.82 54.71 21.19 13.96 61.56
As the quick ratio say about the measures the ability of a company to use its near cash or quick assets to immediately extinguish or retire its current liabilities. Here in 2004 it was 1.58 but as company got profit in 2006 & 2007 it increase up to 3.73 ,by this current ratio we can assume that company have enough current assets to extinguish the current liabilities. The same case is with current ratio as company is pipe line business where require higher intial capital investment , & return mainly realize after 2-3 year of project completion , one can increase its current ratio only by making efficient operating cycle or in other word its by decreasing receivables day , or increasing payable days , if we observe the efficiency ratio we can conclude that in 2007 payable day decrease & receivable day increase ,which is the main reason behind their performance dip. In 2008 company pay concern on this matter & tried to improve it so there is marginally improvement in 2008 & the performance again get better .
Relative performance of competitors— Company GAIL Oil & Natural Gas Corporati on Ltd. Cairn India Ltd. Aban Offshore Ltd. Hindustan Oil Exploratio n Company Jindal Drilling & Industries Ltd.
Ltd. Sales (rs cr.) PAT (rs cr.) Market Cap (rs cr.) 18,012.74 2,601.46 60,065.10 16,701.65 182,788.0 5 1.27 -78.82 657.92 159.1 114.51 2.47 412.76 18.37
COMPARISION WITH PEERS As Indian economy was growing rapidly from last 5 years so demand of energy resources had been increased accordingly ,but as the price of crude has been hike natural gas has became a more cheaper & cleaner substitute of crude . Up to 2003 in the distribution & transmission sector GAIL was only there but now there are two more player in market. GSPL & RGTL ( subsidiary of reliance ) Initially both was in E& P sector but as they got gas reserve around India & need to provide gas at market place aroused they jumped in this sector too. Winners in the CGD business will be the integrated players—those who have an assured supply of gas and a pipeline network to transport it. Neither GAIL nor Reliance is integrated today, though Reliance is closer. Interestingly, each is strong in the area the other is not—GAIL in pipelines, Reliance in gas ownership. In other words, GAIL’s strength is Reliance’s weakness, and Reliance’s strength is GAIL’s weakness. This adds a new dimension to this battle as, purely on the business front, Reliance narrows the gap to GAIL Rgtl & gspl both are new company in this sector with relatively zero experience while GSPL has non listed company status. If we compare them from financial view than reliance is way ahead from both other companies. in 2008 revenue of
reliance was 87% higher than GAIL & 98% higher than GSPC , beside it RIL has a very diverse portfolio compare to GAIL &GSPC .
GAIL pipe line network 7000 city network 9 gas reserve Financial Revenue(Rs cr.) 18008 net profit net worth Valuation market cap.( Rs. Cr.) PE
RIL 1400 0 11.8
GSPC 1400 12 1.57 2495 226 1484 NA NA
13926 9 2601 15261 13005 79766 27139 21494 0 8.2 13.9
. That’s because it’s easier to lay down pipelines than strike gas. GAIL has a network of about 7,000 km, with plans to increase it to 13,000 km by 2012. By comparison, Reliance has a pipeline length of 2,000 km, with a target of 3,000 km by 2012. That means it has to use GAIL’s pipelines in several places. That’s not a problem, as companies can use pipelines of their competitors by paying a fixed carriage fee. By law, all pipeline players have to reserve 33% capacity in their pipelines to transport gas of other companies. In other words, even without adequate pipelines of its own, the downside for Reliance is limited. However, Reliance doesn’t have to reserve gas for GAIL, but it probably will in return for using GAIL’s pipelines; it has already signed an MoU to allow GAIL some of its Krishna-Godavari (KG) Basin gas. So, the upside for Reliance from owning gas reserves is huge. In its D-6 field in the KG Basin, Reliance has reserves of about 11.5 trillion cubic feet. This is the biggest gas find in India after Bombay High in 1974. In one shot, it will make Reliance the largest gas producer
in India, with the D-6 gas alone likely to account for about 25% of the country’s needs over the next 10 years at least. Further, Reliance is exploring more. GAIL, by comparison, generates no gas by itself. It’s not into exploration or production, it’s only into transmission and distribution. It buys most of its gas from fellow PSUs like ONGC and Oil India, and a small amount from private players like Cairn Energy. The PSU connection helps GAIL. It will get all the gas produced by ONGC from its Western fields, as well as the new gas that will start flowing from the KG and Mahanadi basins. For now, GAIL is fine—in fact, better than Reliance—on the gas supply front. Most of the gas being supplied by ONGC and Oil India to it is from blocks given out before the New Exploration Licensing Policy (NELP) came into force in 1997. The price of this gas is fixed by the government, through the administered pricing mechanism (APM). As a result, it is very cheap—$1.7-2 per million metric British thermal units (mmbtu), less than half the $4.24 from the Reliance fields or $4.74 per mmbtu currently available from Panna-Mukta-Tapti field. And it is much cheaper than imported liquefied natural gas (LNG), whose prices vary from $9-24 mmbtu depending on crude prices.
70 79 % %
Both gas Distribution and Marketing industry are on high side of industry attractiveness as well as on high side of business unit strength.. Therefore according to GE Matrix the company should grow the businesses of both gas distribution and marketing and therefore put more resources into these businesses
Industry Attractiveness The vertical axis of the GE / McKinsey matrix is the strength of the business unit. Some factors that can be used to determine business unit strength include: Market Growth Rate With government in long term planning for a national gas grid and more emphasis on natural gas in total energy mix of the country market is expected to grow at very fast rate. Also many city gas distribution tenders are there to be bided for in near future ensures there is high growth in this area.
Market Size Market size is pretty big in this industry. Demand Variability Demand variability is low as most of the customers are captive power plants etc with low demand variability.
Industry Profitability (Porters five force model) It is derived from porters five force model. Macroenviormental Factors(PESTEL Analysis) This index is derived from pestel analysis. Impact Market Growth Rate Market Size Demand Variability Industry Profitability Macroenviornmental Force 9 8 7 6.97 6.766 Weight Multiplier 0.3 2.7 0.2 1.6 0.1 0.7 0.2 1.394 0.2 1.3532 7.7472
It shows industry is in high growth and it is fruitful for companies in this industry to stay.
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GAIL as a Business Unit The horizontal axis of the GE / McKinsey matrix is the strength of the business unit. Some factors that can be used to determine business unit strength include:
Currently, GAIL’s market share in gas transmission and marketing is 79% and 70% respectively. 2) Brand equity GAIL (India) Limited, India’s principal Gas Transmission and Marketing Company, was created in 1984 with the objective of accelerating and optimizing the effective and economic use of natural gas and its fractions to the benefit of national economy. In line with core objective of its incorporation, GAIL has, over the years, developed natural gas infrastructure for sustained development of gas market in the country. Gail has also been actively participating and contributing positively in the social & the environmental sectors of the country. Gail has huge plans for the future and has helped to reduce the gap between demand & supply of gas in the country. GAIL’s brand equity in terms of financial strength has been rising which can be seen from its yr-on-yr growth in revenue and profits from its various operations. One of the measures of brand equity is by measuring the market capitalization and then subtracting value of tangible and measurable intangible assets from it. For the Yr 2007-08 the market capitalization of Gail was Rs. 35,928 Crores and value of tangible assets & intangible assets was Rs.19,364.22 Crores. So value of Brand equity would be RS. 16563.78 Crores. So Gail has a good brand equity which can also been seen by the fact that, it was selected as the top Indian company in the Gas-Processing, Transmission and
Marketing Sector for the Dun & Bradstreet Corporate Awards 2007. The corporate awards have been launched to recognize the twin virtues of size and growth in the top organizations of corporate India. The awards recognized the best organizations spread across various sectors such as Oil and Gas Exploration, Power Generation, Banks, Software and IT, Fertilizers, Cement, FMCG and others.
3) Business Capacity GAIL owns and operates 6700 km. of natural gas transmission network which is over 82% of the total pipeline infrastructure in the country. The extensive natural gas infrastructure established over the last two decades has enabled sustained development of sizeable gas market in the country. GAIL has robust future plans and a road map has been developed to increase pipeline infrastructure to 12000 km by 2011-12. Gas Transmission : Projects Underway 1) Dahej Vijaipur Pipeline Project 2) Dahej Uran Pipeline Project 3) South Gujarat Pipeline Project 4) HVJ Phase III Pipeline Project 5) Project Blue Sky 6) Chaisa Gurgoan Pipeline Project 7) Vizag Secunderabad LPG Pipeline Project Marks Market Share Brand Equity Business Capacity Multiplie Weight r 9 0.6 5.4 8 0.2 1.6 7 0.2 1.4 8.4
6 5 4 3 2 1 0 Market Share Brand Equity Business Capacity Series1
The figure shows that the company has high business unit strength.
As determined by GE matrix company should grow in the industry it should invest its resources in the distribution and marketing industry and further grow this business. Also it should venture its funds aggressively into the city gas distribution business. There are ample lots of opportunities coming in this business. As can be seen from SWOT major threat to the company is securing its supplies of natural gas. Till now the company is procuring its supplies from the PSU ONGC & OIL but as can be seen from the figure supplies are diminishing from these companies. Therefore the need to secure its supplies from other resources one of the upcoming major producer is reliance but the reliance can become companies major competitor future in gas marketing so other options needs to be ensured.
OPTIONS FOR ENSURING GAS SUPPLY
• Company can move on its own into exploration and production business. • Company can have Joint Ventures with other companies which are already into exploration business and can go in exploration and production. • Company can make long term contracts with big producers. • With the help of govt. try to secure there gas supplies from international producers. Going for its own production and exploration is not a feasible option for the company as neither the company has that spare resources to invest nor the company has its core competency to venture in this business.
Company can look into all other three options and make a good blend of all the three to minimize the risk of supplies. Higher preference should be given to long term contracts and international contracts as far as feasible. As going into production and exploration even in joint ventures is a costly and risky affair. Also the company has ample opportunities to grow in its own industry and business so it need not go for such risk unless necessary.
BIBILOGRAPHY www.gailonline.com www.petroleum.nic.in www.businessoutlook.com www.livemint.com Annual report of GAIL,RIL & GSPC www.ril.com www.gspc.in www.heneryhubprice.com
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