Gail (India) reports 28.7% Net Income decline and almost no change in EBITDA Margin of 9.2%

25 May 2016 • About Gail (India) ($GAID) • By InTwits

Gail (India) reported FY2016 financial results today. Overall the company's long term financial model is characterised by the following facts:

Gail (India) has high CAPEX intensity: 5 year average CAPEX/Revenue was 11.9%. At the same time it's a lot of higher than industry average of 5.9%.
CAPEX is quite volatile: 32,319 in FY2016, 28,898 in FY2015, 52,697 in FY2014, 89,904 in FY2013, 98,482 in FY2012
The company has potentially unprofitable business model: ROIC is at 5.4%
It operates with medium-size leverage: Net Debt/EBITDA is 3.1x while industry average is 3.1x

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

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

mln. INR	2012	2013	2014	2015	2016	2016/2015
P&L
Revenue	440,578	508,927	616,435	605,147	545,720	-9.8%
EBITDA	70,665	74,642	79,912	56,239	50,319	-10.5%
Net Income	44,436	43,736	47,862	31,601	22,516	-28.7%
Balance Sheet
Cash	14,462	30,646	32,111	15,583	23,982	53.9%
Short Term Debt	21,647	33,040	24,761	35,390	53,201	50.3%
Long Term Debt	93,410	131,684	160,609	147,524	126,699	-14.1%
Cash flow
Capex	98,482	89,904	52,697	28,898	32,319	11.8%
Ratios
Revenue growth	25.5%	15.5%	21.1%	-1.8%	-9.8%
EBITDA growth	8.6%	5.6%	7.1%	-29.6%	-10.5%
EBITDA Margin	16.0%	14.7%	13.0%	9.3%	9.2%	-0.1%
Net Income Margin	10.1%	8.6%	7.8%	5.2%	4.1%	-1.1%
CAPEX, % of revenue	22.4%	17.7%	8.5%	4.8%	5.9%	1.1%
ROIC	16.5%	13.8%	12.1%	7.3%	5.4%	-2.0%
ROE	19.3%	16.3%	15.6%	9.5%	6.5%	-3.0%
Net Debt/EBITDA	1.4x	1.8x	1.9x	3.0x	3.1x	0.1x

Revenue and profitability

Gail (India)'s Revenue decreased on 9.8% in FY2016. EBITDA Margin showed almost no change in FY2016.

Net Income marign decreased slightly on 1.1 pp from 5.2% to 4.1% in FY2016.

Capital expenditures (CAPEX) and working capital investments

In FY2016 the company had CAPEX/Revenue of 5.9%. The company showed big decline in CAPEX/Revenue of 11.7 pp from 17.7% in FY2013 to 5.9% in FY2016. For the last three years the average CAPEX/Revenue was 6.4%.Battling declining revenue the company invested a large share of EBITDA (64.2%) to CAPEX but that didn't help at least in this year.

Return on investment

The company operates at low ROIC (5.39%) and ROE (6.49%). ROIC decreased slightly on 2.0 pp from 7.3% to 5.4% in FY2016. ROE decreased on 3.0 pp from 9.5% to 6.5% in FY2016.

Leverage (Debt)

Company's Net Debt / EBITDA is 3.1x and Debt / EBITDA is 3.6x. Net Debt / EBITDA surged on 0.1x from 3.0x to 3.1x in FY2016. Debt decreased slightly on 1.6% in FY2016 while cash surged on 53.9% in FY2016.

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.

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.