GAIL (India) Limited (previously Gas Authority of India Ltd.) is a central public sector undertaking (psu) under the ownership of Ministry of Petroleum and Natural Gas, Government of India. The company was incorporated in 1984 and is headquartered in New Delhi. The company’s functioning is monitored by the Ministry of Petroleum and Natural Gas. It has the following business segments: natural gas, liquid hydrocarbon, liquefied petroleum gas transmission, petrochemical, city gas distribution, renewable Energy including Solar & Wind, exploration and production, Petrochemicals, GAILTEL and electricity generation.
GAIL owns and operates a network of around 13,722 km of natural gas pipeline, over 2300 km of LPG pipelines, six LPG gas-processing units and a petrochemicals facility. Presently the company is executing about 6,000 km of pipeline projects of its own and about 2,000 km through two JVs, as part of the National Gas Grid. The Petroleum and Natural Gas Regulatory Board (PNGRB) has authorized the company to execute a 1,755 km long Mumbai-Nagpur-Jharsuguda Pipeline.
GAIL has wholly owned subsidiaries in Singapore and the US for expanding its presence outside India in the segments of LNG, petrochemical trading and shale gas assets.
GAIL was honoured with the Maharatna status on 1 Feb 2013, by the Government of India.
Quarterly Growth Walkthrough
GAIL has given a highly upsetting performance in the second quarter and shocking the margins have diminished to the extreme. A deep plunge has been seen in volumes and margins of gas marketing, gas transmission, and petrochemicals dragged down earnings. The management’s dissertation could not conclude a prompt reassurance from the present circumstances.
| Particulars | Sep 2022 | Jun 2022 | Sep 2021 | QoQ | YoY |
| Revenues | 38,680 | 37,897 | 21,758 | 2% | 77% |
| Expenses | 36,777 | 33,350 | 18,136 | 10% | 103% |
| Operating Profit | 1,904 | 4,547 | 3,622 | -58% | -47% |
| Net Profit | 1,305 | 3,251 | 2,873 | -60% | -55% |
| EPS | 2.00 | 4.95 | 4.33 | -60% | -54% |
Gazprom replacement problematic
GAIL owns a long-term gas supply contract with Gazprom (Russia), but due to the present Russia-Ukraine warfare in Europe, the Russian company has aborted the supply of gas to GAIL during 2022. GAIL was supposed to get 8.5-9 mmsmcd gas through this contract and this insufficiency was assuaged by acquiring 1-2 cargoes from expensive spot LNG. The company had to shorten the consumption at its own Pata Petrochem plant and by curbing supply to some of the customers. The present condition has shown no signs of soothing and will have dire consequences on margins due to the procurement of the expensive LNG and the distress in Petro-Chem.
Petro-Chem segment faces misery
The Petro-Chem segment has been tormented with a loss of Rs 210 crore. For the mitigation in the shortage of gas, the production has been reduced. In the second quarter, the employment for the segment was only at 40 percent. It is expected that such conditions will persist, and this segment would abrade margins in FY23. Additionally, the procurement of JMF Petrochemicals demands an investment of about Rs 2000 crore in order for the plant to be operational by FY25.
Long term panorama
GAIL’s pipelines will soon undergo revision in tariff and it might be the stimulant or place a severe impact on the company in the coming months. Any reduction in tariff might have consequences on the company’ financials as transmission is an instrumental constituent of the EBITDA. The crumbling in the gas marketing spread and curbs onto gas supply are alarming and the probability of reduction in LNG prices are doubtful.
Realisations in transmission and the marketing segments have increased. We can assume a rise in revenues in the coming quarters. Owing to the present circumstances, the stock might remain volatile in a range with a minimal bullishness. Therefore, new investment into this stock would not bear fruits as the growth of the company is weak and the stock price has been consolidated for the past 2 years.
Technical Analysis
GAIL stock price is unable to make a breakout over its 61.8% retracement level. The price is still below the highs made before 2020 crash and struggles to make a bullish breakout. The stock price has consolidated in 2021 and 2022 and we can observe a triple top candlestick pattern marked inside the yellow box.
Presently, the price is trading slightly above the 200-day moving average, but the MFI is at 69 points which indicates the stock is overbought. Until the supply situation remains unresolved, the company will experience challenges in growth and the price will consolidate. Hence the stock is a great candidate for directional neutral trading as per the Advance Options Course.
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