SWOT Analysis of
Gail India Limited
Strategic and SWOT Analysis Report on GAIL India Limited
COMPANY
OVERVIEW
GAIL
(India) Limited (GAIL or the company) is India's flagship natural gas company.
It is engaged in the exploration and production, processing, transmission,
distribution, and marketing of natural gas. It also offers liquefied petroleum
gas (LPG) and other liquid hydrocarbons and petrochemicals. The company
operates in India, Singapore, China, and Egypt. GAIL is headquartered in New
Delhi, India and employed 3,937 people as on March 31, 2012.
The
company recorded revenue from operations (revenues) of INR448,610.5 million
($9,358 million) during the financial year ended March 2012 (FY2012), an
increase of 25.5% over FY2011. The operating profit of the company was
INR63,552.4 million ($1,325.7 million) during FY2012, an increase of 9.8% over
FY2011. The net profit was INR44,436.1 million ($926.9 million) in FY2012, an
increase of 10.5% over FY2011.
SWOT
ANALYSIS
GAIL
is India's flagship natural gas company. It is engaged in the exploration and
production,
processing,
transmission, distribution, and marketing of natural gas. The company’s strong
market presence gives it a competitive advantage. However, intense competition
could affect the market position of the company.
Strengths
Strong market presence across various
businesses
GAIL
is one of the leading energy companies in India. The company is the largest gas
transmission and marketing company in India. GAIL has also been conferred
second position by PLATTS among the fastest growing Asian companies. The
company currently accounts for about 74% of the natural gas transmitted in
India through pipelines and accounts for about 50% of the natural gas sold in
India. It also produces about 21% of polyethylene produced in India and every
tenth LPG cylinder produced in India is by GAIL. Additionally, the company
supplies gas for about 50% of the country’s fertilizer produced and approximately
50% of the country’s gas based power generation. GAIL also operates more than 67%
of India’s CNG stations. The company is also the market leader with a market
share of 74% in natural gas volume. The
company’s strong market position gives it a competitive advantage.
Strong integrated operations
GAIL
is one of the most vertically integrated gas companies in India. It integrates
all the aspects of the natural gas value chain including exploration and
production, processing, transmission, distribution and marketing, and its
related services. The company owns and operates a network of over 9,500 kms of
natural gas high pressure trunk pipeline with a capacity to carry 172 metric
million standard cubic meters per day (MMSCMD) of natural gas across the
country. It supplies natural gas as fuel to power plants, as feedstock for gas
based fertilizer plants, and to about 500 other small, medium, and large
industrial units to meet their energy and process requirements.
GAIL
holds a participating interest in 29 oil and gas exploration blocks and in one
coal bed methane (CBM) block in partnership with Tata Power. It also owns and
operates a gas based integrated petrochemical plant at Pata, Uttar Pradesh, and
seven LPG plants in the country. Its city gas segment supplies natural gas to
households, commercial users, and to the transport sector thorough its joint venture
companies. Strong integrated operations diversify the company's operations and
helps in sustainable growth.
Weaknesses
Concentration of revenues in India
GAIL
derives majority of its consolidated revenues from India. The company’s
transmission and
distribution
facilities are located in India. High dependence on the domestic market
restricts the
company's
income growth to the local economy. It is also exposed to the risk of economic
slowdown and government regulations in India.
Controlling stake of the government
GAIL
is a government owned corporation wherein the Indian Government has a
controlling stake in the company. Government’s ownership in the company leads
to regulations in pricing, imports, exports, management, and other areas, as
compared to other public companies. As a result of which the company may have
to compromise its profits in the interest of the country and social welfare. Further,
the company has to depend on the government for taking important policy
decisions. Lack of autonomy also leads to the interference in the everyday
operations of the company by the government and also the political bodies. Hence,
the Indian Government having ownership control may have an adverse affect on
GAIL’s operations and may further impact its growth opportunities.
Opportunities
Rising trend in the Indian energy sector
India's
consumption of energy has risen faster in the recent years and is expected to
grow further.
In
the current scenario, India’s per capita energy consumption is about 500
kilograms (kg) of oil
equivalent
against the world’s average energy consumption of about 1,800 kg of oil
equivalent. This makes the country the fourth largest consumer of energy in the
world and is estimated to be the third largest consumer by 2025, after the US
and China.
It is
estimated that the growing energy demand in India will be met through the
supply of fossil fuels in the short to medium term and natural gas is expected
to contribute significantly to the energy growth. Natural gas consumption in
the country has witnessed an 11.5% CAGR during the period from FY2007 to
FY2012, making it the fastest growing fossil fuel. In terms of overall gas
supply in India, the natural gas volumes in 2011–12 have increased to 172
MMSCMD from 154 MMSCMD in 2010–11. The share of natural gas in India’s energy
mix is around 11% against the world average of about 24% providing a large
scope for higher utilization of natural gas in India. In the coming years, given
the advantages of natural gas in terms of efficiency, price, and environmental
impact, the demand for natural gas is estimated to reach up to 600 MMSCMD by
2022 offering several opportunities to GAIL for the development of the gas
industry.
Strategic sourcing of natural gas
The
company has formed a number of agreements with domestic as well as global
players with an objective to secure additional supplies to meet demand over a
long term. For instance, in December 2011, GAIL signed a SPA for the supply of
LNG over 20 years with Sabine Pass Liquefaction, a subsidiary of Cheniere
Energy Partners, for supply of 3.5 MTPA of LNG. Thereafter, in May 2012, GAIL
signed a GSPA for purchase of gas from Turkmenistan to be transported through
the Turkmenistan-Afghanistan-Pakistan-India (TAPI) Pipeline.
Further,
in August 2012, GAIL signed an LNG supply agreement with Gas Natural Fenosa of
Spain for the supply of three bcm of LNG over the next three years as well as
with GDF SUEZ for the supply of 12 cargoes from 2013 to 2014, representing a
total of 0.8 million tons. Later, in October
2012,
GAIL signed a legally binding 20-year LNG SPA with Gazprom Marketing and
Trading Singapore (GM&TS), a 100% wholly-owned subsidiary of Gazprom
Marketing & Trading. This strategic approach will help the company to meet
the increasing needs of the domestic market thereby maintaining and increasing
its market share.
Focus on research and development
Gail
is focusing on research and development for inventing techniques for the
conservation and
utilization
of resources. For instance, GAIL in collaboration with the Municipal
Corporation of Delhi, is working on the extraction of landfill gas at Ghazipur
for conversion to CNG after purification. A CNG station running on landfill gas
will be the first in the world. This project will generate clean fuel as well
help in combating global warming due to the capture of methane gas, which
otherwise would have released into the atmosphere.
Another
collaborative project is with CMERI, Durgapur and IIT Kharagpur to develop the
composite cylinders for storage of CNG. These light weight cylinders shall help
increase the fuel efficiency of the vehicle. Further, they are also in process
to develop the nano composite materials for the storage of hydrogen gas, which
is forecasted as the fuel of the future.
These
research and development projects will help the company in developing new
revenue streams through the introduction of new products and services.
Threats
Intense competition
The
company faces stiff competition across different market segments it serves. The
competition in the Indian gas utilities industry is largely on the basis of
price, allowing companies entering the industry to use price undercutting as an
entrance strategy. GAIL faces competition from companies such as Gujarat Gas
Company, Reliance Industries, Mahanagar Gas, and Oil and Natural Gas Corporation.
Intense competition is likely to affect the market position of the company.
Drilling risk
Drilling
natural gas wells, including development wells, involves numerous risks,
including the risk that the company may not encounter commercially productive
natural gas reservoirs. As a result, the company may not recover all or any
portion of its investment in new wells. The presence of unanticipated pressures
or irregularities in formations, miscalculations, or accidents, among other factors,
may cause the company's drilling activities to be unsuccessful and result in a
partial or total loss of its investment. Any delays or setbacks in the drilling
activity of the company may reduce the productivity of its operations.
If
you want SWOT Analysis Report on GAIL, contact Mahasagar Publications.
