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SECURITY ANALYSIS & PORTFOLIO MANAGEMENT -

FUNDAMENTAL ANALYSIS ON GAIL INDIA LTD

 Economic Analysis - Overview of Indian and Global Economic Scenario

India has emerged as the fastest-growing major economy in the world and is
expected to be one of the top three economic powers in the world over the next
10-15 years, backed by its robust democracy and strong partnerships.
 India’s nominal gross domestic product (GDP) at current prices is
estimated to be at Rs. 232.15 trillion (US$ 3.12 trillion) in FY2021-22.,
 India is the third-largest unicorn base in the world with over 83 unicorns
collectively valued at US$ 277.77 billion, as per the Economic Survey.
By 2025, India is expected to have 100 unicorns, which will create ~1.1
million direct jobs according to the Nasscom-Zinnov report ‘Indian Tech
Start-up’.
 India needs to increase its rate of employment growth and create 90
million non-farm jobs between 2023 and 2030s, for productivity and
economic growth according to McKinsey Global Institute. The net
employment rate needs to grow by 1.5% per year from 2023 to 2030 to
achieve 8-8.5% GDP growth between 2023 and 2030.
 According to data from the Department of Economic Affairs, as of
January 28, 2022, foreign exchange reserves in India reached the US$
634.287 billion mark.

Road Ahead :
Mr. Piyush Goyal, Minister of Commerce and Industry, Consumer Affairs,
Food and Public Distribution, on January 21, 2022, said that Indian industry
to raise 75 unicorns in the 75 weeks leading up to the country's 75th
anniversary next year.

Mr. Piyush Goyal said that India will achieve exports worth US$ 650 billion
in the financial year 2021-22.

India’s electronic exports are expected to reach US$ 300 billion by 2025-26
this will be nearly 40 times the FY2021-22 exports (till December 2021) of
US$ 67 billion.

As per the data published in a Department of Economic Affairs report, in the

first quarter of FY22, India’s output recorded a 20.1% YoY growth,
recovering >90% of the pre-pandemic output in the first quarter of FY20.
India’s real gross value added (GVA) also recorded an 18.8% YoY increase
in the first quarter of FY22, posting a recovery of >92% of its corresponding
pre-pandemic level (in the first quarter of FY20). Also, in FY21, India
recorded a current account surplus at 0.9% of the GDP. The growth in the
economic recovery is due to the government’s continued efforts to accelerate
vaccination coverage among citizens. This also provided an optimistic
outlook to further revive industrial activities.
As per RBI’s revised estimates of July 2021, the real GDP growth of the
country is estimated at 21.4% for the first quarter of FY22. The increase in
the tax collection, along with government’s budget support to states,
strengthened the overall growth of the Indian economy.

India is focusing on renewable sources to generate energy. It is planning to

achieve 40% of its energy from non-fossil sources by 2030, which is
currently 30% and have plans to increase its renewable energy capacity from
to 175 gigawatts (GW) by 2022. In line with this, in May 2021, India, along
with the UK, jointly launched a ‘Roadmap 2030’ to collaborate and combat
climate change by 2030.

India is expected to be the third largest consumer economy as its

consumption may triple to US$ 4 trillion by 2025, owing to shift in
consumer behaviour and expenditure pattern, according to a Boston
Consulting Group (BCG) report. It is estimated to surpass USA to become
the second largest economy in terms of purchasing power parity (PPP) by
2040 as per a report by PricewaterhouseCoopers.

Some key observations:

 Forex reserve enough to finance over 12 months of import

 high energy and commodity prices may pose upside risk

 Energy and metals warrant continued vigil on inflation

 Spiking crude oil will pose downside risk to growth in FY2022-23

 International commodity prices are expected to level off early

 Capex is expected to pump prime private investment and demand

 India has adequate forex reserves to absorb any upcoming external shock.
 OIL & GAS INDUSTRY

India is the third largest energy and oil consumer in the world after China and
the US.
India is the 4th largest importer of liquefied natural gas (LNG).
India consumed 213.13 MMT petroleum products and 64.14 BCM natural gas
in FY 2019-20, marking a growth of 0.4% and 5.5% over the FY 2018-19
consumption levels. India’s oil demand rises by almost 4 mb/d to reach 8.7
mb/d in 2040, the largest increase of any country.

 India aims to reduce oil and gas imports dependence by 10% by 2022
 The total number of fuel retail outlets increased from 18,848 (2002) to
77,094 (2021) at a CAGR of 7.7%. This number has increased to 81,099
as of Jan 2022. 
 India is working to become a gas-based economy by increasing the share
of natural gas in India’s energy mix from 6.3 % to 15% by 2030. 
 Target of setting up 12 Commercial Scale 2G Bio-Ethanol Projects with
Viability Gap Funding of up to INR 150 Cr per per project under the
Pradhan Mantri Ji-VAN Yojana. 
 Target of setting up 5000 Compressed Biogas (CBG) units under the
Sustainable Alternative Towards Affordable Transportation (SATAT)
Scheme
 Natural Gas production increased by 19.5 % in Dec 2021 over Dec 2020.
 Cumulative natural gas production during April-December 2021 was
25673.90 MMSCM, which is 21.51% higher than production during
corresponding period of last year.
 4.56% is the Gas Consumption CAGR (2015-20)
  GROWING DEMAND –
Consumption of natural gas in India is expected to grow by 25 billion cubic
metres (bcm), registering an average annual growth of 9% until 2024.

 RAPID EXPANSION –
In October 2021, the Union Ministry of Petroleum & Natural Gas approved a
revised project cost of Rs. 28,026 crore (US$ 3.8 billion) to increase refining
capacity–for the ongoing Numaligarh Refinery Expansion Project–from 3
mmtpa to 9 mmtpa

 SUPPORTIVE FDI GUIDELINES

In July 2021, the Department for Promotion of Industry and Internal Trade
(DPIIT) approved an order allowing 100% foreign direct investments (FDIs)
under automatic route for oil and gas PSUs.
The Government has allowed 100% Foreign Direct Investment (FDI) in
upstream and private sector refining projects.

 POLICY SUPPORT
In Union Budget 2021, the government allocated funds worth Rs. 12,480 crore
(US$ 1.71 billion) for direct benefit transfer of LPG (liquefied petroleum gas)
and Rs. 1,078 crore (US$ 147.31 million) to feedstock subsidy to BCPL/Assam
Gas Cracker Complex.
 GAIL INDIA LTD (Fundamental Analysis)
GAIL (India) Ltd is India`s flagship natural gas company integrating all aspects
of the natural gas value chain including exploration and production, processing,
transmission, distribution and marketing and related services. The company
today has reached new milestones with their strategic diversification into
petrochemicals, telecom, and liquid hydrocarbons, besides gas infrastructure.
They have also extended their presence in power, liquefied natural gas re-
gasification, city gas distribution and exploration and production through equity
and joint ventures participations. The company also engaged in the business of
LPG, Natural Gas, Petro-chemicals, Natural Gas Trading, LPG & Liquid
Hydrocarbons
GAIL (India) Ltd was incorporated on August 16, 1984, as a public limited
company with the name Gas Authority of India Ltd. At the time of India Ltd. At
the time of incorporation, all the shares were held by the Government of India.
Initially, the company started as a gas transmission company. They grew
organically over the years by building a large network of natural gas trunk
pipelines covering a length of 7850 km.
The board of directors of GAIL approved the "buyback of about 5.70 crore
shares at the rate of Rs 190 per share aggregating to about Rs 1,083 crores
(excluding taxes)," the company said in a statement. The buyback price of
equity shares is at a 24 per cent premium over Wednesday's close price at NSE.
Buying back shares is considered a tax-efficient way of rewarding shareholders.
The government owns a 51.80 per cent stake in the company and is likely to
participate in the buyback. In the 2020-21 buyback, the government had
received Rs 747 crore.
During the current financial year (2021-22), the company paid the highest ever
interim dividend of Rs 3,996 crore (at the rate of 90 per cent of the face value).
GAIL had issued bonus shares in FY 2008-09, 2016-17, 2017-18 and 2019-20.
In March 2021, it completed buyback of about 6.97 crore shares at Rs 150
apiece.
The company supplies 67 per cent of gas consumed in the fertilizer sector, 53
per cent in power and 60 per cent in the city gas sector. With an LNG portfolio
of over 14 million tonnes per annum and diversity in supply sources and price
indices, GAIL is well poised to cater to the needs of the customers and actively
contribute towards the national goal of a 'gas-based' economy