GAIL (INDIA) LTD

‘Maharatna’ across the gas chain

GAIL (India), a Maharatna PSU, is India’s leading natural gas company with diversified interests across the natural gas value chain of trading transmission, LPG production & transmission, LNG regasification, petrochemicals, city gas, ERP, etc. The company owns and operates a network of around 15,583 km of natural gas pipelines spread across the length and breadth of the country. It is currently working on execution of multiple pipeline injections to further enhance the spread.

Today, GAIL commands a 70 per cent marketshare in gas transmission and has a gas trading share of over 50 per cent in India. GAIL and its subsidiaries and joint ventures have a formidable marketshare in city gas distribution. In the LNG market, the company has a significantly large portfolio. It is also expanding its presence in renewable energy like solar, wind and biofuel.

GAIL is growing steadily in its financial performance. Though its sales turnover during the last 12 years has moved up from Rs 44,093 crore in fiscal 2012 to Rs 138,166 crore in fiscal 2023, its profitability growth is not up to the mark, with operating profit improving only marginally from Rs 7,040 crore to Rs 7,502 crore and net profit from Rs 4,444 crore to Rs 5,596 crore. However, prospects for the company going ahead are highly encouraging. Consider:

• The national gas transmission volume is on the rise. According to experts, the gas transmission volume is expected to grow to 140 mmscmd, clocking a 9 per cent CAGR during 2023-2026. This volume growth will be fuelled by an increase in domestic gas production from Reliance Industries, ONGC and Oil India.

• Gas consumption in India is also going up and is expected to shoot up further by a notable rise in LNG regasification capacity over the next few years as five new LNG terminals ramp up their operations. The GAIL man-agement has guided that the gas transmission volume will improve by 12-13 mmscmd over fiscal 2025-2026.
• The company’s petrochemicals segment is coming out of the woods. The management expects the segment to come out of the red and break even in the next 4-5 months, and generate profits in the fiscal 2025. From the next year, GAIL expects reasonable profits in the petrochemical division as petro prices are expected to improve and input costs are likely to come down.

• The company is among the ‘dividend king’ stocks with a high dividend yield. It also has a strong track record of rewarding shareholders. In the last 12 months, it paid dividends up to Rs. 9.50 per share and on the current market price, the yield works out at 5.18 per cent. As far as bonus issues are concerned, after starting with a 1:2 bonus issue in 2008, GAIL rewarded its shareholders with two back-to-back bonus issues at a 1:3 ratio each in March 2017 and March 2018. What is more, in July 2019 it issued bonus shares in a liberal ratio of 1:1. Once again, it delighted its shareholders with a 1:1 bonus issue in 2022. Even after all these bonus issues, the company’s reserves at the end of March 2023 stabd at Rs 66,284 crore — more than 10 times its equity capital of Rs 6575 crore.

• The company is going great guns on the renewable energy front. It is setting up a 4.3 tpd green hydrogen plant at Vijaypur at a capex of Rs 230 crore as a pilot plant. This should help it scale up green energy investment in the future.
• GAIL is performing very well this year, with consolidated sales during the first nine months ended December 2023 amounting to Rs 1,00,666 crore against Rs 1,12,611 crore and the profit at net level shooting up 49 per cent to Rs 7,431 crore. These numbers follow an improvement in physical performance across all major business verticals and the petrochemicals vertical coming out of the red. In FY 2024, we expect the company to register EPS of Rs 14.8, which is likely to rise to Rs 16.0 in FY 2025. The scrip trades at Rs 179. P/E on the FY 2025 EPS works out to 11.2.

PERFORMANCE INDICATORS (Rs. in crore)

SIGACHI INDUSTRIES

Global supplier of excipients

Incorporated in 1987, Sigachi Industries has by now emerged as one of the largest manufacturers of micro crystalline cellulose (MCC) worldwide. It is an undisputed industry leader in the field of pharma excipients, and nutra and food ingredients. With three multi-locational facilities in Telangana and Gujarat, the company has ensured supply chain reliability for its customers spread across the globe.

The company is steadily improving its financial performance. During the last six years, its sales turnover has advanced from Rs 101 crore in fiscal 2018 to Rs 302 crore in fiscal 2023, with operating profit at the net level shooting up more than six times from Rs 7 crore to Rs 44 crore. What is more, prospects ahead are all the more promising. Consider:

• With excellent absorption capacities, a broad particle size profile, superior compressibility leading to faster disintegration, MCC has earned its position as the most widely used excipient in the pharma industry globally. Sigachi manufactures around 60 different grades of MCC ranging from 15 to 250 microns and having varied applications in the pharma, food, nutra and cosmetic industries.

• Sigachi is also entering the market as a Croscarmellose Sodium (CCS) manufacturer. MCC is a binder and it binds the whole tablet together, whereas CCS becomes a disintegrant where it breaks up the tablet at the right point within the body to release the drug. So, every tablet which is taken in also needs to have CCS.
• The company has carved a niche in the production of highly innovative preformulated excipients as well as more than 60 widely used excipients that meet international quality standards. Sigachi manufactures high-quality cellulosebased excipients, which predominantly find applications in the pharmaceutical, supplement, and nutrition food industries.
• Sigachi is a significant player in this promising market, presently serving over 52 countries with a global presence. In line with its diversification strategy and a focus on expanding its global footprint, it has incorporated Sigachi Arabia, a joint venture with Saudi National Projects Investment Limited. This strategic move includes a plan for a manufacturing facility at Riyadh within the next three years, initially catering to the local and GCC markets.
• The company has been experiencing strong growth with a topline CAGR of 25% over the last five years. As part of its strategic plan to scale up operations, the company is currently in the process of expanding MCC capacity by more than 50%, increasing from approximately 14,000 tonnes per annum to more than 21,000 tonnes per annum.
• Its strategic focus on a high margin yielding product mix and efficient manufacturing processes, coupled with effective inventory management, gives it a competitive edge and is instrumental in sustaining its leadership position in the country. For the nine monthe ended 2023, sales jumped 28% to Rs 294.83 crore. EBITDA grew 30% to Rs 60.32 crore with a margin of 20.5%. PAT rose 18% to Rs 41.94 crore.

FUTURE FOCUS

• In a significant development, Sigachi MENA FZCO, a wholly owned subsidiary of Sigachi Industries, and iConsult Trading Consultancy LLC, a wholly owned subsidiary of iMass Investments, announced the formation of a joint venture (JV), Sigachi Global, to enter the growing UAE food and pharma market. In FY 2024, we expect the company to register EPS of Rs 1.3 which is likely to rise to 1.7 in FY 2025. For FY 2026 and FY 2027, the company can be expected to register EPS of Rs 2.6 and EPS of Rs 5.3. The scrip trades at Rs 71. P/E on FY 2027 EPS works out to 17.3. The company will continue to report robust growth post 2027 also.

PERFORMANCE INDICATORS (Rs. in crore)