2020

Analysis Report

FUNDAMENTAL & TECHNICAL ANALYSIS

KUMARESAN N

8122818922 | kumaresan10mba@gmail.com
 GAIL (India) Ltd
REVENUE (INR Crs.) Industry : Energy
MCap : 39,779 Crores
₹ 75,126 ₹ 71,871
CMP : 84.15.Rs
₹ 51,721 ₹ 53,662
₹ 48,149 52 week High/Low : 148.75 / 65.00
Beta : 0.79

2016 2017 2018 2019 2020

ABOUT THE COMPANY
OPERATING PROFIT INR Crs. Gail Limited is Government of India
undertaking company. Gail is the
largest state-owned natural gas
₹ 9,533 processing and distribution company in
₹ 8,357 India. It is headquartered in New Delhi.
₹ 7,632
₹ 5,925 It is a state-owned enterprise of the
₹ 4,301 Government of India, under the
administrative control of the Ministry
of Petroleum and Natural Gas.
2016 2017 2018 2019 2020

PAT (INR Crs.) Pros :

 Company is virtually debt free.
₹ 6,621  Stock is trading at 0.77 times
₹ 6,026
its book value.
₹ 4,618
 Stock is providing a good
₹ 3,503
dividend yield of 7.61%.
₹ 2,226
 Company has delivered good
growth of 24.36% CAGR over
2016 2017 2018 2019 2020
last 5 years.
 The Company has been
EPS maintaining a healthy dividend
payout of 32.65%.
Cons :
₹ 14.68  The company has delivered a
₹ 13.36
₹ 10.24 poor growth of 3.7% over past
₹ 7.77 five years.
₹ 4.94  Tax rate seems low
2016 2017 2018 2019 2020
 Ratio Analysis of GAIL (India) Ltd

Earning Per Share :

The earnings per share are calculated by dividing a company’s net income by its number of
shares outstanding :
Earnings per share ratio = Net earnings / Total shares outstanding
EPS – 12.49

 The EPS Rating is one key to picking the best stocks.

 Stocks with EPS growth rates of at least 25% compared with year-ago levels suggest
a company has product or services in strong demand.
 Strong earning growth is essential to a stock’s success and has the greatest impact on
its future price performance.
 It’s important to realize that companies can boost their EPS figures through stock
buybacks that reduce the number of outstanding shares.
 Strong profit growth also demands strong sales growth.

Price to Earnings Ratio :

The price-earnings ratio, or P/E is the ratio of the market price of a company’s stock to its
earning per share (EPS). The ratio is ised for valuing companies and to find out whether they
are overvalued or undervalued.
Price-Earnings ratio = Share price / Earnings per share
P/E – 6.86

Interpretation of PE :
 Generally a high PE ratio suggest that market participants are bullish on the
stock and expect the company to post higher earnings growth going forward.
However, it can also be interpreted as an overpriced stock in some cases.
 A low PE ratio can either be interpreted as an undervalued stock or market
participants are not too bullish on the company’s future earning growth.
Key Takeaway :
 Generally, a high P/E ratio means that investors are anticipating higher growth
in the future.
 The current average market P/E ratio is roughly 20 to 25 times earnings.
 Companies that are losing money do not have a P/E ratio.
Debt to Equity Ratio :
The debt-to-equity (D/E) ratio compares a company’s total liabilities to its shareholder
equity.
Debt to Equity Ratio = Total Debt / Shareholders Equity
Debt to Equity = 0.13

 Debt to equity is viewed as a long term solvency ratio. It is a comparison between

“external finance” and the “internal finance”.
 If the ratio is greater than 1 not good. If it is smaller than 1 is good
 Negative debt to equity ratio indicates that company is having excess cash.

Return on Equity (ROE) :

ROE is more than a measure of profit; It’s a measure of efficiency. A rising ROE suggest that
a company is increasing its ability to generate profit without needing as mush capital.
Return on Equity = (Net Profit / Shareholders Equity) * 100
ROE = 19.45

 It also indicates how well a company’s management is deploying the

shareholders capital. In other word, the higher the ROE the better. Falling ROE
is usually a problem.
 To give you a perspective, the average ROE of top Indian companies vary
between 14-16%. I personally prefer to invest in companies that have a ROE of
18% upwards. ROEs of 15-20% are generally considered good.

Return On Capital Employed (ROCE) :

ROCE is return on capital employed and it measures how a company uses its capital to generate
profit.
ROCE = (Net Operating Profit (EBIT) / Capital Employed) * 100
EBIT = Total Revenue – (Cost of goods sold (COGS) + Operating Expenses)
Capital Employed = Total Assets – Current Liabilities Or
Capital Employed = Shareholders Equity + Long Term Liabilities
ROCE = 19.45 %

 Total Assets, Assets are defined as anything that a business owns, has value and
can be converted to cash.
 Current Liabilities are debt that are due within 12 months.
 An increasing ROCE ratio implies strengthening long-term profitability.
Price to Book Value (P/B) :
In this equation, book value per share is calculated as follows (Total assets – total liabilities)
/ number of shares outstanding). Market value per share is obtained by simply looking at the
share price quote in the market.
Price to Book Value = Market price per share / Book Value per share
P/B = 0.77

 The market value of equity is typically higher than the book value of a
company.
 P/B ratios under 1 are typically considered solid investments.

Price to Earning Growth Ratio (PEG) :

PEG ratio, takes the P/E ratio and combines it with the company’s expected earnings growth,
in order to better express the valuation of growing companies.
PEG Ratio = PE Ratio / Earnings Growth Rate
Earning Growth Rate = ((Previous year PE / Current year PE) – 1) * 100
PEG Ratio = 0.18

 PEG > 1 is Overvalued stock, PEG < 1 is Undervalued stock

Ben Graham Intrinsic Value :

According to Graham and Dodd, value investing is deriving the intrinsic value of a common
stock independent of its market price. By using a company’s factors such as its assets, earnings,
and dividend payouts, the intrinsic value of a stock can be found and compared to its market
value. If the intrinsic value is more than the current price, the investor should buy and hold
until a mean reversion occurs. By buying an undervalued stock, the investor is, in effect, paying
less for it and should sell when the price is trading at its intrinsic worth.
INTRINSIC VALUE = 551.8
Graham Value :
The Graham number is a figure that measures a stock's fundamental value by taking into
account the company's earnings per share and book value per share. The Graham number is the
upper bound of the price range that a defensive investor should pay for the stock. The formula
is as follows:
Graham Number = 216.16

[22.5 × (earnings per share) × (book value per share)] ^1/2

The term is also sometimes referred to as Benjamin Graham’s number.

Altman Z-Score :
The Altman Z-score is based on five financial ratios that can calculate from data found on a
company's annual 10-K report. It uses profitability, leverage, liquidity, solvency, and
activity to predict whether a company has a high probability of becoming insolvent.
Altman Z- Score = 3.67

Relative Valuation
Company P/E EV/EBITDA Divident ROE(%) ROA(%)
Payout(%)
GAIL (INDIA) 4.60 4.00 30.64 19.45 16.27
Petronet LNG 12.48 7.79 69.36 25.81 19.93
Indraprastha Gas 27.97 17.87 15.69 24.48 24.12
Adani Gas 51.75 35.91 6.30 33.52 25.34
Guj.ST.Petronet 5.51 4.84 6.52 55.72 23.57
Mahanagar Gas 13.10 8.96 43.57 29.66 29.10
Deep Industries 8.04 11.40 0.00 0.10 0.09
NOTE: The Industry sector P/E is 17.64.
 Technical Analysis

Important Points :
 Accumulating GAIL@₹83 CMP and on dips. Looking good, accumulate slowly
between ₹65-83 for medium to long term. Buy when no one wants to buy.
 My long term target is :
Target 1- Rs.115.75 ; Target 2- Rs.131.65 ; Target 3- Rs.147.55 ; Target 4- Rs.170.15
Disclaimer : I personally added the stock & will continue to add. Can go wrong, do your
own research before buying. Sharing for informative purpose only.

Portfolio Allocation :

Total Amount = Rs.5,00,000

Allocation level of each stock is 1% taken from total portfolio amount
= 5,00,000 * 0.01 => 5,000
Risk Tolerance = 15% => 5,000 / 0.15 => 33,333.33
Current Market Price of GAIL (India) Ltd = 85.00 (Approx)
= 85 * 0.15 => 12.75
= 5,000 / 12.75
= 392.16 ~ 392 Shares
= 392 * 85 => Rs.33,320