Gas Authority of India Ltd.

Credit Memo for Gas Authority of India-(GAIL)

- Contents
❖ Introduction
❖ Two-Year Comparison Reports
• Balance Sheet – Two-Year Comparison
• Statement of Income – Two-Year Comparison
• Ratio Analysis – Two-Year Comparison
❖ Industry Comparison Reports
• Balance Sheet – Industry Comparison
• Ratio Analysis – Industry Comparison
❖ Conclusion

1|Page
-A report by Pakshal Parmar
Gas Authority of India Ltd.

Introduction
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.

Quick Analysis Financial Reports

The collection of reports included in this document is based on the sample client data that has
been collected from Capitaline Software and Money Control.com. The provided reports include
two-year comparison reports, industry comparison reports and ratio formulas.

2|Page
-A report by Pakshal Parmar
Gas Authority of India Ltd.

GAIL FINANCIAL ANALYSIS REPORT-

A project by Pakshal Parmar

3|Page
-A report by Pakshal Parmar
Gas Authority of India Ltd.

Financial Analysis

Balance Sheet - Two years comparison

%
Particulars 201903 201803 Varaince Variance
Shareholder's Funds
Share Capital 2,255.07 2,255.07 0.00 0%
Ordinary Capital 2,255.07 2,255.07 0.00 0%
Ordinary A / DVR Capital 0 0 0.00 0%
Preference Capital - I 0 0 0.00 0%
Preference Capital - II 0 0 0.00 0%
Preference Capital - III 0 0 0.00 0%
Unclassified Capital 0 0 0.00 0%
Reserves and Surplus 41,837.87 38,073.05 3,764.82 10%
Money received against Share Warrants 0 0 0.00 0%
Total Shareholder's Fund 44,092.94 40,328.12 3,764.82 9%

Share Application Money pending

Allotment 0 0 0 0

Non-Current Liabilities
Long-Term Borrowings 870.58 976.12 -105.54 -11%
Deferred Tax Liabilities (Net) 5,947.71 4,630.93 1,316.78 28%
Deferred Tax Liability 8,023.69 6,532.19 1,491.50 23%
Deferred Tax Assets 2,075.98 1,901.26 174.72 9%
Other Long Term Liabilities 3,438.38 1,665.03 1,773.35 107%
Long-Term Provisions 694.55 580.43 114.12 20%
Total Non Current Liabilities 10,951.22 7,852.51 3,098.71 39%

Current Liabilities
Short-Term Borrowings 0 0 0.00 0%
Trade Payables 3,961.18 3,881.55 79.63 2%
Other Current Liabilities 4,642.48 5,172.12 -529.64 -10%
Short-Term Provisions 730.79 847.88 -117.09 -14%
Total Current Liabilities 9,334.45 9,901.55 -567.10 -6%

Other Equity & Liabilities 0 0

TOTAL EQUITY AND LIABILITIES 64,378.61 58,082.18 6,296.43 11%

4|Page
-A report by Pakshal Parmar
Gas Authority of India Ltd.

ASSETS
Non-Current Assets
Fixed Assets 40,288.55 34,303.79 5,984.76 17%
Tangible Assets 29,682.92 27,738.64 1,944.28 7%
Intangible Assets 1,403.17 1,051.13 352.04 33%
Capital Work-in-Progress 9,202.46 5,514.02 3,688.44 67%
Intangible assets under development 0 0 0.00 0%
Non-Current Investments 9,528.17 9,571.60 -43.43 0%
Deferred Tax Assets (net) 0 0 0.00 0%
Deferred Tax Assets 0 0 0.00 0%
Deferred Tax Liability 0 0 0.00 0%
Long-Term Loans and Advances 2,877.26 2,622.39 254.87 10%
Other Non-Current Assets 1,377.02 1,475.77 -98.75 -7%
Total Non Current Assets 54,071.00 47,973.55 6,097.45 13%

Current Assets
Current Investments 0 381.47 -381.47 -100%
Inventories 2,321.91 1,919.53 402.38 21%
Trade Receivables 4,060.19 3,054.59 1,005.60 33%
Cash and Cash Equivalents 1,214.69 2,529.39 -1,314.70 -52%
Short-Term Loans and Advances 2,005.01 1,100.76 904.25 82%
Other Current Assets 705.81 1,122.89 -417.08 -37%

Total Current Assets 10,307.61 10,108.63 198.98 2%

Other Assets 0 0 0.00 0%

TOTAL ASSETS 64,378.61 58,082.18 6,296.43 11%

Tangible Networth 38,885.38 33,252.66 5,632.72 17%

Net Working Capital 973.16 207.08 766.08 370%

5|Page
-A report by Pakshal Parmar
Gas Authority of India Ltd.

Statement of Income- Two Year Comparison

Particulars 201903 201803 Variance % Variance
REVENUE
Revenue From Operations(Gross) 75,126.76 53,825.49 21,301.27 40%
Less: Excise Duty 0.46 163.91 -163.45 -100%
Revenue From Operations(Net) 75,126.30 53,661.58 21,464.72 40%
Other Income 1,544.81 987 557.81 57%
Total Revenue 76,671.11 54,648.58 22,022.53 40%

EXPENSES:
Cost of Materials Consumed 4,584.26 3,712.42 871.84 23%
Purchases of Stock-in-Trade 54,662.34 36,758.58 17,903.76 49%
Changes in Inventories -382.45 -34.12 -348.33 1021%
Employee Benefits Expenses 1,778.37 1,340.73 437.64 33%
Finance Costs 138.54 275.11 -136.57 -50%
Depreciation and Amortization
Expenses 1,550.22 1,415.14 135.08 10%
Other Expenses 4,928.68 4,250.04 678.64 16%
Total Expenses 67,259.96 47,717.90 19,542.06 41%

Profit before Exceptional and

Extraordinary Items and Tax 9,411.15 6,930.68 2,480.47 36%

Exceptional Items -326.33 27.69 -354.02 -1279%

Profit before Extraordinary Items and

Tax 9,084.82 6,958.37 2,126.45 31%

Extraordinary Items 0 0 0.00 0%

Profit before Tax 9,084.82 6,958.37 2,126.45 31%

Tax Expenses 3,059.15 2,339.96 719.19 31%

(1) Current Tax 2,464.26 1,654.10 810.16 49%
(2) Deferred Tax 620.51 706.64 -86.13 -12%
(3) Other Tax Adjustments -25.62 -20.78 -4.84 23%
Prior Year Tax -25.62 -20.78 -4.84 23%
Minimum Alternate Tax 0 0 0.00 0%
Others 0 0 0.00 0%

Profit/(Loss) for the period from

Continuing Operations 6,025.67 4,618.41 1,407.26 30%

Profit/(Loss) for the period 6,025.67 4,618.41 1,407.26 30%

Basic EPS 26.72 20.48 6.24 30%

Diluted EPS 26.72 20.48 6.24 30%
Book Value 195.53 178.83 16.70 9%
Contingent Liabilities 12,585.42 14,758.55 -2,173.13 -15%

6|Page
-A report by Pakshal Parmar
Gas Authority of India Ltd.

RATIOS - KEY FINANCIAL RATIOS - GAIL (India) Ltd

Particulars 201903 201803 Variance
Key Ratios
Debt-Equity Ratio 0.04 0.09 -0.05
Long Term Debt-Equity Ratio 0.02 0.05 -0.03
Current Ratio 0.71 0.74 -0.03

Turnover Ratios
Fixed Assets 2.17 1.7 0.47
Inventory 35.11 29.44 5.67
Debtors 21.12 18.63 2.49
Total Asset Turnover Ratio 1.6 1.2 0.4
Interest Cover Ratio 66.58 26.29 40.29
PBIDTM (%) 14.34 16.07 -11%
PBITM (%) 12.28 13.44 -9%
PBDTM (%) 14.16 15.56 -9%
CPM (%) 10.08 11.21 -10%
APATM (%) 8.02 8.58 -7%
ROCE (%) 19.65 16.08 22%
RONW (%) 14.28 11.77 21%
Payout (%) 28.78 37.9 -24%

7|Page
-A report by Pakshal Parmar
Gas Authority of India Ltd.

Detailed Ratio Analysis - Two-Year Comparison

Liquidity ratios measure a company’s ability to meet its maturing short-term obligations. In
other words, can a company quickly convert its assets to cash without a loss in value if
necessary, to meet its short-term obligations? Favourable liquidity ratios are critical to a
company and its creditors within a business or industry that does not provide a steady and
predictable cash flow. They are also a key predictor of a company’s ability to make timely
payments to creditors and to continue to meet obligations to lenders when faced with an
unforeseen event.

Current Ratio

Current Assets / Current Liabilities

This ratio reflects the number of times short-term assets cover short-term liabilities and is an
accurate indication of a company's ability to service its current obligations. A higher number is
preferred because it indicates a strong ability to service short-term obligations. The
composition of current assets is a key factor in the evaluation of this ratio.
The current ratio for Gail is 0.71, which compared to the Industry baseline of 1.13 indicates the
company's ability to service short-term obligations is satisfactory. However, the value of the
quick ratio will provide a clearer indication of the company's success in this area.

Accounts Receivable to Working Capital

Trade Accounts Receivable / (Current Assets - Current Liabilities)

This ratio measures the dependency of working capital on the collection of receivables. A lower
number for this ratio is preferred, indicating that a company has a satisfactory level of working
capital and accounts receivable makes up an appropriate portion of current assets.

The accounts receivable to working capital ratio for Gail is 4.17, which compared to the last
year ratio of 14.75 indicates that the company's performance is sufficient in this current year.

Inventory to Working Capital

Inventory / (Current Assets - Current Liabilities)

This ratio measures the dependency of working capital on inventory. A lower number for this
ratio is preferred indicating that a company has a satisfactory level of working capital and
inventory makes up a reasonable portion of current assets. The inventory to working capital
ratio for Gail is 2.39, which compared to the last year of 9.27 indicates this ratio is in line with
company goals.

8|Page
-A report by Pakshal Parmar
Gas Authority of India Ltd.

Long Term Liabilities to Working Capital

Long Term Liabilities / (Current Assets - Current Liabilities)

This ratio measures the degree to which a company's long-term debt has been used to
replenish working capital versus fixed asset acquisition. The long-term liabilities to working
capital ratio for Gail is 4.43, which compared to the last year baseline of 12.75 indicates the
value of this ratio is meeting the company's expectations and company is regular in growth and
has adequate measures for repayment of Debt.

Sales to Working Capital

Sales / (Current Assets - Current Liabilities)

This ratio measures a company's ability to finance current operations. Working capital (current
assets -current liabilities) is another measure of liquidity and the ability to cover short-term
obligations. This ratio relates the ability of a company to generate sales using its working capital
to determine how efficiently working capital is being used. In general, a lower number is
preferred because it indicates a company has a satisfactory level of working capital. However,
an exceptionally low number may indicate inadequate sales levels are being generated.
The sale to working capital ratio for Gail is77.20, which compared to the last year baseline of
259.13 reveals that the company's level of working capital is strong. The company may want to
make an effort to generate additional sales using the available working capital.

The following list includes several suggestions Gail should consider to improve the liquidity
ratios:

Reduce days in accounts receivable to improve current assets by evaluating accounts receivable
on a more frequent basis and take a more assertive stance in the collection of accounts
receivable.
Prepare thorough cash forecasts and evaluate the company's ability to meet goals on a regular
basis.
Consider paying off short-term obligations if the cash position of the company is favourable.
Consider converting short-term debt to long-term debt.
Reduce levels of non-moving inventory.

Activity ratios provide a useful gauge of a company's operations by determining, for example,
the average number of days it takes to collect on customer accounts and the average number
of days to pay vendors. A key point to keep in mind when evaluating these ratios is that
seasonal fluctuations arenot necessarily reflected in the numbers that are derived from these
calculations based on an account balance on one single day.

9|Page
-A report by Pakshal Parmar
Gas Authority of India Ltd.

Accounts Receivable Turnover

Sales / Trade Accounts Receivable

This ratio measures the number of times receivables turn over in a year and reveals how
successful a company is in collecting its outstanding receivables. A higher number is preferred
because it indicates a shorter time between sales and cash collection. The accounts receivable
turnover for Gail is 21.12, which compared to the last year baseline of 18.63suggests this ratio
is on target with company objectives. However, more liquidity can be achieved by reducing the
account receivable period.

Operating Cycle Days

(Inventory / (Sales / Days)) + (Trade Accounts Receivable / (Sales / Days))

This ratio calculates the total conversion period for a company, or in other words, the average
number of days it takes to convert inventory into cash from sales. It is calculated by adding
together the days cost of sales in inventory to the days sales in receivables. Evaluating this ratio
can be helpful in gauging the effectiveness of marketing, determining credit terms to extend to
customers, and collecting outstanding accounts.
The operating cycle days for Gail is 31.01days; which compared to the last year baseline of
33.73 days indicates the company is successfully minimizing the amount oftime it takes to
convert products and services into cash.

Net Fixed Assets to Equity

(Property and Equipment - Accumulated Depreciation) / Total Equity

This ratio measures the extent to which investors' capital was used to finance productive
assets. A lower ratio indicates a proportionally smaller investment in fixed assets in relation to
net worth, which is desired by creditors in case of liquidation. This ratio could appear
deceptively low if a significant number of a company's fixed assets are leased.Net fixed assets
to equity for Gail is0.91, which compared to the baseline of 0.85 indicates the company's
performance is adequate in this area.

Profitability ratios measure a company’s ability to use its capital or assets to generate profits.
Improving profitability is a constant challenge for all companies and their management.
Evaluating profitability ratios is a key component in determining the success of a company. It is
important to note that all profitability ratio calculations are based on earnings before taxes.

10 | P a g e
-A report by Pakshal Parmar
Gas Authority of India Ltd.

Percent Profit Margin on Sales

Earnings before Taxes / Sales * 100

This ratio measures how much profit a company makes on each sales dollar received and how
well a company could potentially deal with higher costs or lower sales in the future.
The percent profit margin on sales for Gail is 14.34%, which compared to the baseline of
16.07%indicates sales may not be contributing enough to the company's bottom line.

Percent Rate of Return on Equity

Earnings before Taxes / Total Equity * 100

This ratio expresses the rate of return on equity capital employed and measures the ability of a
Company’s management to realize an adequate return on the capital invested by the owners in
a company. A higher number is preferred for this commonly analysed ratio.
The percent rate of return on equity for Gail is 19.65%, which compared to the last year
baseline of 16.08%indicates management is effectively managing the profits earned based on
the owners investment in the company.

Coverage ratios assess a company’s ability to meet its long-term obligations, remain solvent,
and avoid bankruptcy. It measures how well a company’s cash flow covers its short-term
financial obligations. Lenders evaluate coverage ratios to determine the degree to which a
company could become vulnerable when faced with economic downturns. A company with a
high level of debt poses a higher risk to long-term creditors and investors.

Equity Multiplier

Total Assets / Total Equity

This ratio measures the extent to which a company uses debt to finance its assets. The higher
the number is, the more a company is relying on debt to finance its assets.
The equity multiplier for Gail is 1.46, which compared to last year baseline of 1.44 indicates a
reasonable portion of the company's assets are owned versus financed.

Debt to Equity

Total Liabilities / Total Equity

This ratio measures the financial leverage of a company by indicating what proportion of debt
and equity a company is using to finance its assets. A lower number suggests there is both a
lower risk involved for creditors and strong, long-term, financial security for a company.

11 | P a g e
-A report by Pakshal Parmar
Gas Authority of India Ltd.

The debt to equity ratio for Gail is .04, which compared to the last year baseline of 0.09
indicates a solid performance in this area for the company.

Times Interest Earned

Earnings before Interest and Taxes / Interest Expense

This ratio measures a company's ability to meet interest payments. A higher number is
preferred, suggesting a company can easily meet interest obligations and can potentially take
on additional debt. This particular ratio uses earnings before interest and taxes because this is
the income amount available to cover interest. The times interest earned ratio for Gail is, 66.58
which compared to the last year baseline of 26.29 indicates the company's interest coverage is
sufficient.
The following list includes several suggestions Gail should consider to improve the coverage
ratios:
Examine the company’s debt to uncover areas needing improvement and create a long range
action plan to address these areas and pay down debt. Increase equity by increasing earnings.
Minimize the overall amount of debt to decrease interest expenses. Reduce interest payments
by evaluating financing alternatives and possibly refinancing existing debt.

12 | P a g e
-A report by Pakshal Parmar
Gas Authority of India Ltd.

Industry Balance sheet Analysis

% %
Particulars 201903 Assets Assets Variance
No. of. Companies GAIL (Industry)
SOURCES OF FUNDS :
Share Capital 2255.07 4% 5% 1%
Reserves Total 41837.87 76% 79% 3%
Equity Share Warrants 0 0% 0% 0%
Equity Application Money 0 0% 0% 0%
Total Shareholders Funds 44092.94 80% 85% 4%

Total Debt 10951.22 20% 9% -11%

Other Liabilities 0 0% 6% 6%

Total Liabilities 55044.16 100%

APPLICATION OF FUNDS :
Net Block 40288.55 73% 74% 1%
Investments 13781.73 25% 20% -5%
Current Assets, Loans & Advances
Inventories 2321.91 4% 4% 0%
Sundry Debtors 4060.91 7% 8% 1%
Cash and Bank 1214.69 2% 6% 4%
Loans and Advances, others 6965.1 13% 12% -1%
Total Current Assets 10308.33 19% 23% 4%
Less : Current Liabilities and Provisions
Current Liabilities 8603.66 16% 16% 1%
Provisions 730.79 1% 1% 0%
Total Current Liabilities 9334.45 17% 17% 0%
Net Current Assets 973.88 2% 6% 4%
Deferred Tax Assets 0 0% 3% 3%
Deferred Tax Liability 0 0% 13% 13%
Net Deferred Tax 0 0% -10% -10%

Total Assets 55044.16 100%

13 | P a g e
-A report by Pakshal Parmar
Gas Authority of India Ltd.

Industry Ratio Analysis

KEY RATIOS - KEY RATIOS - Gas Distribution (Curr: Rs in Cr.)

Particulars GAIL 2019 Variance

No Of Companies 1 7

Key Ratios
Debt-Equity Ratio 0.04 0.31 -0.27
Long Term Debt-Equity Ratio 0.02 0.31 -0.29
Current Ratio 0.71 1.04 -0.33

Turnover Ratios
Fixed Assets 2.17 1.8 0.37
Inventory 35.11 43.23 -8.12
Debtors 21.12 21.72 -0.6
Total Asset Turnover Ratio 1.6 1.53 0.07
Interest Cover Ratio 66.58 22.82 43.76
PBIDTM (%) 14.34 14.92 -0.58
PBITM (%) 12.28 12.83 -0.55
PBDTM (%) 14.16 14.36 -0.2
CPM (%) 10.08 10.24 -0.16
APATM (%) 8.02 8.14 -0.12
ROCE (%) 19.65 19.61 0.04

14 | P a g e
-A report by Pakshal Parmar
Gas Authority of India Ltd.

Conclusion

The analysis of Balance sheet and the related ratios as compared to the prior years and in
comparison to the Industry suggests that company is on the positive side and it is favourable to
give loan to the company. It can be observed that company is better position and has a good
growth prospects in the near future period.

The company is favourable in term of Debt-Equity, Asset Turnover ratio, debtor’s turnover ratio
which gives a clear indication that company can attain more debt considering the future
prospects and also company has a strong and a quicker collection period of receivable as
compared to the Industry.

On the other side the company has a Interest coverage ratio of 66.58 as compared to the
Industry average of 22.82. This shows that company ability to meet Interest payments .

Although, company’s PBDTM are close to the Industry ratios, it has a good ROCE with a positive
factor of 0.04 when compared with Industry.

Assessing the growth factors of the company where there is a increase in the revenue of the
company of 40% year on year basis and the growth rate of Industry is on an average 23% the
company is doing exceptionally good and it will be favourable to the bank as well as the
company for project finance.

The results of Maximum Bank finance to the company based on WC requirement shows that
the company is already at the maximum level of the Bank finance and as per turnover method
of bank finance considering the growth prospects of the industry as well as the company there
is a positive sign for granting of Term loan.

Considering all the factors, It is advisable to grant the term loan of 100 million to the GAIL.

15 | P a g e
-A report by Pakshal Parmar