BW Real 500: In Rough Weather

The impact of tumbling crude oil and natural gas prices and a meltdown in demand has been severe on the balance sheets of all major companies in the petro-fuels sector. Against this backdrop, the state gas utility, the Gas Authority of India Limited (GAIL), managed to retain its status as a large and creditable public sector undertaking (PSU).

During the 2015-16 financial year, GAIL’s revenue fell from Rs 61,645.86 crore in the 2014-15 fiscal to Rs 55,804.25 crore. The company’s net profit dipped by 33.3 per cent. Even so, GAIL continues to be among the largest state-run companies in the country and so, figures in our annual list of the BW Real 500 corporate entities.

Anticipating the difficult path ahead, GAIL’s chairman and managing director, B. C. Tripathi, had stated in the company’s annual report for FY 2015-16 that, “Notwithstanding these challenges which have had physical and financial implications on your company, the management has taken it as an opportunity and has initiated strategic steps to reinvent itself and emerge out stronger than before.”

He added that the “volatility in oil prices had caused a downward shift in prices of LNG, oil products, petrochemical products, etc. Further, domestic production of natural gas has been on the decline over the past five years, from a peak of 140 mmscmd (million metric standard cubic metres per day) in 2010-11 to 86 mmscmd in 2015-16.”

Officials at GAIL believe that the future is going to be exciting for them. They are convinced that some policy initiatives of the government and some strategic thinking done by the top management in the past would ensure that growth remained integral to GAIL. Tripathi said that he, “continuously reviews its strategy developed for the period 2011-2020 to make the necessary course correction, in line with changes in the external business environment and internal organisational requirements.”

In the days ahead, GAIL will be working on the development of the National Gas Grid. Phase -1 of the Haldia pipeline project, which is referred to as the Energy Highway of Eastern India, has already been inaugurated by Prime Minister Narendra Modi in July, 2015. According to a recent report, Gail will receive government funding of Rs 5,176 crore to partly meet the project cost of the gas pipeline connecting the eastern part of the country with the national grid.

GAIL was formed in 1984 and has since laid a network of about 14,000 km of pipeline, entirely on the strength of its balance sheet and without any budgetary support from the government. The company will develop city gas distribution networks for CNG for automobiles and piped cooking gas for households in Varanasi, Patna, Ranchi, Jamshedpur, Bhubaneswar, Kolkata and Cuttack with the laying of the pipeline.

GAIL is also pursuing the Turkmenistan-Afghanistan-Pakistan-India (TAPI) transnational pipeline project. A Gas Sales & Purchase Agreement (GSPA) has already been signed to import 38 mmscmd of natural gas into the country through this pipeline.

In the current year, GAIL has done well in the share market and is likely to keep up the momentum. Its petrochemicals business is expected to incrementally benefit from better capacity utilisation of the new plant at Pata in Uttar Pradesh. Moreover, lower gas prices and higher realisations are also expected to offer support to the petrochemicals segment. Going forward, GAIL is expected to churn out profits, as there is already a turnaround in the petrochemicals business. In the second quarter of the last financial year, ended September 2016, the gas utility posted a record net profit.