Gail (India) reports 34.0% Net Income decline and 1.8% Revenue decline

27-05-2015 • About Gail (India) ($GAIL) • By InTwits

Gail (India) reported FY2015 financial results today. Overall the company's long term financial model is characterised by the following facts:

EBITDA Margin is declining: 9.3% in FY2015 vs. 13.0% in FY2014 vs. 18.5% in FY2011
Gail (India) has high CAPEX intensity: 5 year average CAPEX/Revenue was 14.8%. At the same time it's a lot of higher than industry average of 3.0%.
CAPEX is quite volatile: 28,898 in FY2015, 52,697 in FY2014, 89,904 in FY2013, 98,482 in FY2012, 72,458 in FY2011
The company has business model with low profitability: ROIC is at 7.3%
It operates with high leverage: Net Debt/EBITDA is 3.0x while industry average is 1.2x

Below you can find a comprehensive analysis of the key data driving the company's performance and stock price.

Gail (India) ($GAIL) key annual financial indicators

mln. INR	2011	2012	2013	2014	2015	2015/2014
P&L
Revenue	351,067	440,578	508,927	616,435	605,147	-1.8%
EBITDA	65,070	70,665	74,642	79,912	56,239	-29.6%
Net Income	40,210	44,436	43,736	47,862	31,601	-34.0%
Balance Sheet
Cash	25,844	14,462	30,646	32,111	15,583	-51.5%
Short Term Debt	10,804	21,647	33,040	24,761	35,390	42.9%
Long Term Debt	58,238	93,410	131,684	160,609	147,524	-8.1%
Cash flow
Capex	72,458	98,482	89,904	52,697	28,898	-45.2%
Ratios
Revenue growth	36.7%	25.5%	15.5%	21.1%	-1.8%
EBITDA growth	19.0%	8.6%	5.6%	7.1%	-29.6%
EBITDA Margin	18.5%	16.0%	14.7%	13.0%	9.3%	-3.7%
Net Income Margin	11.5%	10.1%	8.6%	7.8%	5.2%	-2.5%
CAPEX, % of revenue	20.6%	22.4%	17.7%	8.5%	4.8%	-3.8%
ROIC	18.2%	16.5%	13.8%	12.1%	7.3%	-4.7%
ROE	20.6%	19.3%	16.3%	15.6%	9.5%	-6.1%
Net Debt/EBITDA	0.7x	1.4x	1.8x	1.9x	3.0x	1.1x

Revenue and profitability

The company's Revenue decreased slightly on 1.8% in FY2015. Revenue decline was worsened by EBITDA margin decline. EBITDA Margin decreased on 3.7 pp from 13.0% to 9.3% in FY2015.

Net Income marign decreased on 2.5 pp from 7.8% to 5.2% in FY2015.

Capital expenditures (CAPEX) and working capital investments

The company's CAPEX/Revenue was 4.8% in FY2015. CAPEX/Revenue dropped on 17.6 pp from 22.4% in FY2012 to 4.8% in FY2015. For the last three years the average CAPEX/Revenue was 10.3%.Gail (India) invested a big chunk of EBITDA (51.4%) to CAPEX which didn't stop revenue from falling.

Return on investment

The company operates at low ROIC (7.35%) and ROE (9.51%). ROIC decreased on 4.7 pp from 12.1% to 7.3% in FY2015. ROE decreased on 6.1 pp from 15.6% to 9.5% in FY2015.

Leverage (Debt)

Company's Net Debt / EBITDA is 3.0x and Debt / EBITDA is 3.3x. Net Debt / EBITDA surged on 1.1x from 1.9x to 3.0x in FY2015. Debt decreased slightly on 1.3% in FY2015 while cash dropped on 51.5% in FY2015.

Appendix 1: Peers in Utilities:Non-Elec.

Below we provide Gail (India) benchmarking against other companies in Utilities:Non-Elec. industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.

Top companies by Revenue growth, %


Top	FY2011	FY2012	FY2013	FY2014	FY2015
Va Tech Wabag ($WABAG)		16.2%	12.1%	38.3%	8.8%
A2Z Maintenance & Engineering Services ($A2ZMES)		-0.5%	-32.6%	-22.6%	-15.4%
Median (2 companies)		7.9%	-10.2%	7.8%	-3.3%
Gail (India) ($GAIL)		25.5%	15.5%	21.1%	-1.8%

Top companies by Gross margin, %


Top	FY2011	FY2012	FY2013	FY2014	FY2015
Va Tech Wabag ($WABAG)	25.5%			24.6%	21.0%
Median (1 company)	25.5%			24.6%	21.0%

Top companies by EBITDA margin, %


Top	FY2011	FY2012	FY2013	FY2014	FY2015
Va Tech Wabag ($WABAG)	9.7%	9.1%	9.6%	9.4%	8.6%
A2Z Maintenance & Engineering Services ($A2ZMES)	17.7%	7.8%	-1.3%	-12.2%	-15.3%
Median (2 companies)	13.7%	8.5%	4.1%	-1.4%	-3.3%
Gail (India) ($GAIL)	18.5%	16.0%	14.7%	13.0%	9.3%

Top companies by CAPEX/Revenue, %


Top	FY2011	FY2012	FY2013	FY2014	FY2015
A2Z Maintenance & Engineering Services ($A2ZMES)	25.6%	35.5%	21.8%	11.3%
Va Tech Wabag ($WABAG)	1.6%	1.6%	2.6%	4.6%	1.2%
Median (2 companies)	13.6%	18.5%	12.2%	8.0%	1.2%
Gail (India) ($GAIL)	20.6%	22.4%	17.7%	8.5%	4.8%

Top companies by ROIC, %


Top	FY2011	FY2012	FY2013	FY2014	FY2015
Va Tech Wabag ($WABAG)	21.2%	17.9%	18.2%	21.1%	18.5%
A2Z Maintenance & Engineering Services ($A2ZMES)	17.2%	4.3%	-2.3%	-5.2%	-6.5%
Median (2 companies)	19.2%	11.1%	8.0%	8.0%	6.0%
Gail (India) ($GAIL)	18.2%	16.5%	13.8%	12.1%	7.3%

Top companies by Net Debt / EBITDA


Top	FY2011	FY2012	FY2013	FY2014	FY2015
Va Tech Wabag ($WABAG)	-2.1x	-1.6x	-1.3x	-0.5x	-0.6x
Median (1 company)	-0.2x	4.3x	-1.3x	-0.5x	-0.6x
Gail (India) ($GAIL)	0.7x	1.4x	1.8x	1.9x	3.0x

Gail (India) stock price chart

Gail (India) financials

mln.	FY2010	FY2011	FY2012

Revenue	256,772	351,067	440,578
EBITDA	54,658	65,070	70,665
Net income	33,278	40,210	44,436
CAPEX	59,581	72,458	98,482
Debt	54,132	69,041	115,056
Cash	45,486	25,844	14,462

About Gail (India)

GAIL (India) Limited operates as a natural gas company in India and internationally. The company operates through Transmission Services, Natural Gas Trading, Petrochemicals, Liquefied Petroleum Gas (LPG) and Other Liquid Hydrocarbons, and Other segments. It is involved in the transmission, distribution, and marketing of natural gas to power and fertilizer sectors, as well as supplies liquefied natural gas to downstream consumers. The company also markets LPG, propane, pentane, naphtha, MFO, propylene, and hydrogenated C4 mix; and manufactures and markets petrochemicals, such as high-density polyethylene and linear low-density polyethylene under the G-Lex and G-Lene brand names. In addition, it operates approximately 400 compressed natural gas retail outlets; and provides piped natural gas to domestic, commercial, and industrial applications, as well as has participating interests in 20 exploration blocks in Mahanadi, Mumbai, Cambay, Assam-Arakan, Tripura Fold Belt, Gujarat Kutch, Krishna Godavari, Cauvery, and Cauvery Palar basins. Further, the company offers long term lease of dark fiber and duct, tower space and collocation facilities, and point-to-point leased line bandwidth services through its 13,000 km OFC network; and generates electric power through a joint venture. It owns approximately 10,900 km of natural gas pipelines; 2 LPG pipelines covering 2,040 km; 7 gas processing plants for production of LPG and other liquid hydrocarbons; and a gas based integrated petrochemical plant for producing polymer. The company was founded in 1984 and is based in New Delhi, India.