We computed the FY21 trailing P/B (current stock price to the FY21 book value) for

all the four peers as in the table below.

Industry average is taken as ratio of all the four peers.
For GAIL India, the P/E ratio comes out to be 1.08, which is much lower as compared
to its peers and the overall industry.
P/E ratio for IGL, Gujarat Gas and Mahanagar Gas comes out to be 5.5, 9.7 and 2.7, the
Industry average is 4.75.
Gujarat Gas and IGL are comparatively overvalued as compared to Industry average,
whereas GAIL India and Mahanagar is undervalued based on these computations.

Result and Observation

Based on the P/E and P/B multiples calculated, we find that GAIL is highly undervalued as
compared to its peers and the industry. The GAIL P/E ratio came out to be 11.76 as against the
Industry Average of 22.45, which shows the ratio is almost half that of Industry Average
making the stock attractive for investors as well as buyback for the company.
Additionally, the P/B ratio is also close to 1, much less than the industry and its peers, which
signifies that the GAIL Share is not overvalued and given its future prospects is a very cheap
buy for investors. Given the cheap valuation for GAIL, it was profitable for the company and
the management to go for a buyback slightly higher than the price of the share during first
quarter of this calendar year.
Based on Relative Valuation, we find that the GAIL share is undervalued.

Conclusion
The objective of our project was to carry out Buyback analysis and Financial valuation of
GAIL Limited. GAIL Limited is one of largest natural gas processor as well as distributor. It is
one of the 10 PSUs of country who have a Maharatna status and is considered one of the stable
companies in its sector as well as in the country. We tried to understand the conditions which
led to the company to announce buyback of its share as well as the effect of buyback in its stock
market. We carried out the Direct Cash Flow as well as Relative Valuation method to value the
company. However, DCF method is preferred over the Relative Valuation method as DCF
provides us with more holistic picture of the company and its cash flows. Upon conducting the
valuation and analysis we found out that the company was slightly undervalued in the market.
Thus buyback of the shares provided strategic benefit to the organisation. As of now it is
suggested to hold the stock of this company as it is expected to grow in the coming future.

Learnings
By undertaking this project we got to learn about a lot of things. The major takeaway from
doing this project are:

i. We were delighted to apply the learning of the class and use it to incorporate into the
project. It provided us with more of hands-on experience
ii. Got an exposure into building DCF as well as Relative Valuation model from scratch.
It helped us to learn and understand about the various sources from which the relevant
data can be gathered and interpreted to do the valuation.

Page | 11
 iii. The project helped us in getting insight in natural gas processing and supply
industry in India.
iv. The project also helped us in developing analytical skills to observe and interpret the
data.
v. Through the help of this project, we learnt to write a structured and comprehensive
report that explains overall project in a systematic way thus making it easily
understandable to the reader
vi. The project helped us to learn about carrying out valuation for any listed company
which is publicly listed as well as understand the reason for certain management
decision for related to financial accounting.

Way Forward
The project was an enriching experience for us as we got to know and understand the financial
market and valuation of the company. We would like to take this learning forward and work on
a case under guidance of our esteemed professor.

As an expansion to this project we can also to valuation of the peers of GAIL Limited and find
out there valuation using DCF method as well and establish whether their stock price are
overvalued or undervalued. Using this data and the trend in the market we can forecast the
growth rate of the organisation as well the sector in the upcoming future.

Furthermore we can incorporate other methods such as trend analysis and find deviation in the
trend. By analysing it we will be able to find out whether the shift in a performance of the
company is due to its management’s decision and policies or whether it is throughout the
industry

Limitations
We referred to data sources like financial websites, brokerage reports etc. for taking our
assumptions and their reliability is one of the limitations to our project. The projections try to
predict the unforeseen future and there is possibility of trends not being followed by global
economies.
COVID has negatively impacted almost all industries across the globe which made the last
quarter of FY 2020 and the first 2 quarters of FY 2021 an abnormal period. This made the
trend analysis of previous year data difficult because the financials during this abnormal period
were different from the past years.
Consumer behaviour has changed a lot due to the pandemic which posed difficulties in
forecasting the revenue for us as it was challenging to accurately predict the growth rates.
Additionally, Electric Vehicles pose a threat to the company as the demand for Natural Gas
could go down in future once the EV markets pick up. This assumption has been included in
the terminal growth rate of the company.

Page | 12
 Appendix
1. GAIL INDIA’s Balance Sheet Statement
GAIL India
Mar-12 Mar-13 Mar-14 Mar-15 Mar 16 Mar-17 Mar-18 Mar-19 Mar-20 Mar 21

EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS

Equity Share Capital 1,268.48 1,268.48 1,268.48 1,268.48 1,268.48 1,691.30 2,255.07 2,255.07 4,510.14 4,440.39

Total Share Capital 1,268.48 1,268.48 1,268.48 1,268.48 1,268.48 1,691.30 2,255.07 2,255.07 4,510.14 4,440.39

Reserves and Surplus 20,356.00 22,959.32 25,803.85 27,851.04 29,316.39 36,458.07 38,073.05 41,837.87 39,460.96 42,170.76
Total Reserves and
20,356.00 22,959.32 25,803.85 27,851.04 29,316.39 36,458.07 38,073.05 41,837.87 39,460.96 42,170.76
Surplus
Total Shareholders Funds 21,624.48 24,227.80 27,072.33 29,119.52 30,584.87 38,149.37 40,328.12 44,092.94 43,971.10 46,611.15

NON-CURRENT LIABILITIES

Long Term Borrowings 4,889.35 8,140.78 9,526.09 7,814.49 5,781.28 3,004.55 976.12 870.58 3,612.12 4,827.08
Deferred Tax Liabilities
1,768.64 2,300.06 2,566.37 3,308.65 4,047.08 3,722.88 4,630.93 5,947.71 4,497.19 4,502.23
[Net]
Other Long Term Liabilities 277.98 685.07 771.17 2,079.41 1,081.23 1,272.72 1,665.03 3,438.38 4,485.98 5,605.64

Long Term Provisions 337.77 359.58 404.04 578.92 617.53 812.6 580.43 694.55 529.67 547.69
Total Non-Current
7,273.74 11,485.49 13,267.67 13,781.47 11,527.12 8,812.75 7,852.51 10,951.22 13,124.96 15,482.64
Liabilities
CURRENT LIABILITIES

Short Term Borrowings 0 223.74 0 233.8 0 0 0 0 1,799.70 738.5

Trade Payables 2,509.93 3,103.76 3,974.83 3,320.48 2,861.60 2,716.01 3,881.55 3,961.18 4,128.43 4,326.35

Other Current Liabilities 3,654.79 4,208.12 4,047.54 5,361.09 7,030.74 4,958.09 5,172.12 4,642.48 4,754.40 5,339.48

Short Term Provisions 4,021.74 1,435.28 1,448.96 1,076.87 989.93 700.74 847.88 730.79 755.04 812.32

Total Current Liabilities 10,186.46 8,970.90 9,471.33 9,992.24 10,882.27 8,374.84 9,901.55 9,334.45 11,437.57 11,216.65
Total Capital And
39,084.68 44,684.19 49,811.33 52,893.23 52,994.26 55,336.96 58,082.18 64,378.61 68,533.63 73,310.44
Liabilities
ASSETS

NON-CURRENT ASSETS

Tangible Assets 15,561.28 18,987.55 20,728.02 27,015.75 28,015.24 27,762.80 27,738.64 29,682.92 31,772.04 34,202.45

Intangible Assets 296.34 719.9 748.61 743.94 731.24 743.39 1,051.13 1,403.17 1,872.94 2,295.49

Capital Work-In-Progress 7,942.45 8,977.82 9,727.85 4,360.02 3,402.79 3,585.20 5,373.89 9,202.46 10,581.89 11,903.41
Intangible Assets Under
218.19 140.13 0 0 0
Development 0 0 0 0 0
Fixed Assets 23,800.07 28,685.27 31,204.48 32,119.71 32,149.27 32,309.58 34,303.79 40,288.55 44,226.87 48,401.35

Non-Current Investments 3,548.93 3,680.05 4,103.00 4,322.36 4,534.33 9,377.08 9,571.60 9,528.17 7,498.47 9,255.34
Long Term Loans And
1,995.58 2,591.49 2,535.12 3,445.87 4,439.28 619.21 558.24 667.76 3,101.88 3,065.69
Advances
Other Non-Current Assets 272.11 673.19 718.41 2,409.95 1,115.54 3,899.87 3,539.92 3,586.52 2,592.47 2,934.95

Total Non-Current Assets 29,616.69 35,630.00 38,561.01 42,297.89 42,238.42 46,205.74 47,973.55 54,071.00 57,419.69 63,657.33

CURRENT ASSETS

Current Investments 0 38.95 0 0 12.35 0 381.47 0 0 468.48

Inventories 1,419.74 1,535.33 2,254.76 2,081.05 1,744.85 1,698.38 1,919.53 2,321.91 2,960.08 2,603.81

Trade Receivables 1,904.48 2,551.34 2,811.99 3,094.52 2,727.61 2,724.54 3,054.59 4,060.19 4,546.84 3,392.33

Cash And Cash Equivalents 931.33 2,357.94 2,650.98 1,141.64 1,793.87 1,341.85 2,529.39 1,214.69 803.91 1,361.83
Short Term Loans And
5,211.22 2,555.86 3,514.36 3,511.70 3,278.59 752.83 691.63 828.39 1,074.88 684.65
Advances
Other Current Assets 1.22 14.77 18.23 766.43 1,198.57 2,613.62 1,532.02 1,882.43 1,728.23 1,142.01

Total Current Assets 9,467.99 9,054.19 11,250.32 10,595.34 10,755.84 9,131.22 10,108.63 10,307.61 11,113.94 9,653.11

Total Assets 39,084.68 44,684.19 49,811.33 52,893.23 52,994.26 55,336.96 58,082.18 64,378.61 68,533.63 73,310.44

Page | 13