1.

INTRODUCTION TO FINANCIAL MANAGEMENT

1.1 INTRODUCTION
Finance is the process of commission of accumulated funds to productive use.
Finance helps to direct flow of economic activity and facilitates its smooth operation.
Finance is the agent that produces this result.

There are many definitions of all the best was of Howard and upon “those
administrative areas of assets of organization which have to do with management of
flow of cash so that the possible and at the same time meet its obligations as they
become due”.

Finance is concerned with the task of providing funds to the enterprises on the
item that is most favourable toward the attainment of the organization foals objects. The
function finance is merely furnishing funds to the organization. Finance has a boarder
meaning and it covers financing planning, forecasting of cash receipts and
disbursement, rising of funds, use and allocation of funds and financial control.

The area of operation of finance manager is vague from one company to another
and industry to industry etc.

1.1.1 Significance of financial management

Financial management is the managerial activity, which is concerned with
planning and controlling of the firm’s financial resources.

The subject of finance management is of immense interest both to academician

and practicing managers. The practicing managers All interested in this subject become
the most crucial decision of the firm All those which results to the finance and on
understanding of theory of finance management provides them conceptual analysis
insights to make these decision skilfully.

As a separate activity and discipline it is of recent origin. It was a branch of

economics till 1890.Today financial management is recognized as the most important
branch of business administration.

1
 Financial management may be defined as the part of management, which is
concerned mainly with raising funds in the most economic and suitable manner, using
these funds as possible planning future operations, and controlling current performance
and future development through financial accounting, cost accounting, budgeting
statistics and other means. It guides investment where opportunity is the greatest
production relatively uniform yard strikes judging most of the firms operations and
projects and is continually necessary for survival and attracting of new capital.

According to Howard and upon, financial management involves the application

of general management principles to a particular operation.

N.G.Wright says finance management is intimately itself woven into the fabric
of the management itself. Its central role is concerned with the some objectives as these
of the management which the way in which the resources of the business are employed
and how the business is finance. He divides financial management into three main
areas:

1. Decision on the structures,

2. Allocation of available funds to specific uses,
3. Analysis and appraised of problems.

Financial management includes planning of finance, cash budgets and sources of

finance. EZRA Solomon and john piglet insists that financial management must attend
to investment decision because if these decision that affects in a large measure the
future of a firm major financial management is an operational function it is involved
with financial planning, forecasting and providing of finance as well as the formation of
financial policies.

Hunt William and Donald son have called financial management as resources
management because in a large organization, the finance managers are the members of
planning, organization, performing and controlling the financial affairs of the enterprise.
The financial management is of great importance in the present day corporate world. It
is the science of money, which permits the authorities to go further.
2
 1.1.2 The Significance of Financial management can be summarized
as:

 It assists in the assessment of financial needs of industries large or small and

indicates the internal and external resources for meeting them.
 It assessment the efficiency and effectiveness of financial institutions in mobilizing
individual or corporate savings. It also prescribed savings into desirable investment
channels.
 It assists the management while investing the funds in profitable projects and it
permits the management to safeguard the interests of shareholders by
properlyutilizing the funds procured from different sources and it also regulates
and controls the funds to get maximum use.
 Analysing the viability of that project through capital budgeting techniques.

It permits the management to safeguard the interest of shareholder of proper

utilizing the funds procured from different sources and also regulates and controls the
funds to get maximum use.

3
 1.2 INTRODUCTION TO FINANCIAL ANALYSIS

The terms ‘financial analysis’ also knows analysis and interpretation of financial
statements refers to the process of determining financial strength and weaknesses of the
firm by establishing strategic relationship between the items of the balance sheet, profit
and loss account and other operative data.

Financial analysis is the process of identifying the financial strength and weakness of
the firm by proper establishing between the items of balance sheet and loss account.
There are various methods or techniques used in analysis financial statements such as
comparative statements, trend analysis, common size statements, schedule of changes in
working capital, funds flow and cash flow analysis – Cost Volume Profit Analysis and
Ratio Analysis.

Financial statement is an organized collection of data according to logical and

consisted accounting procedures. Its purpose is to convey an understanding of some
financial aspects of a business form. It may reveal a series of activities over a given
period of time, as in the case of an income statement.

The focus of the financial analysis is on key figures in the financial statements
and the significant relationships theexists between them. The analysis of financial
statements is a process of evaluating relationships between component parts of financial
statements to obtain a better understanding of the firm’s position and performance.

1.2.1 Financial Analysis:

Financial analysis is the process of identifying the financial strengths and
weakness of the firm by property establishing relationships between the item of the
balance sheet and the profit and loss account. Financial analysis can be undertaken by
management of the firm, or by parts outside the firm.

4
1.2.2 USERS OF FINANCIAL ANALYSIS:
 Management
 Trade creditors
 Investors
 Government
 Others
Management:
Management of the firm would be interested in every aspect of the financial
analysis. It is their overall responsibility to see that the resources of the firm are used
most effectively and efficiently and that the firm’s condition is sound.

Trade Creditors:
The trade creditors are to be paid in a short term solvency of the concern. The current
ratio and acid test ratio will enable the creditors to assets the short term solvency
position of the concern.

Investors:
The Investors are interested their money in the firms shares, are not concerned
about the firms earnings. They restore more confidence in those firms that show steady
growth in earnings. As such, they concentrate on the analysis of the firms present and
future profitability. They are also interested in the firm’s financial structure to the extent
it influences the firms earning ability and risk.

Government:
The financial statements are used to asses tax liability of business enterprise.
These statements enable the government to find out whether the business is following
various regulations or not.

Others:
Trade associations, stock exchange and public at may also analyse the financial
statements to judge the financial position of different concerns.

5
1.2.3 Definition
According to Myres “Financial statement analysis is largely is a study of the
Relationship among the various financial factors in a business as disclose by a single set
of statement and a study of the trend of these factors as show in a series of statements.

1.2.4 Financial statements are indicators of the two significant factors:

2. Profitability
3. Financial Soundness
Analysis and interpretation of financial statements therefore refers to such
a treatment of the information contained in the income statement and the balance
sheet so as to afford full diagnosis of the profitability and financial soundness of
the business.
The term “analysis” means methodical classification of the data given in
the financial statements. The term “interpretation” means “explaining the
meaning and significance of the data so simplified.

6
 1.3 OBJECTIVES OF THE STUDY
 The primary objective of financial analysis is to assist in decision making.
 To provide reliable financial information about economic resources and obligations.
 To calculate present and future earning capacity or profitability of the concern.
 To possibility of development in the future by making forecasts and preparing budgets.
 To comparative study in regards to one firm with another firm or one department with
another department.
 To long-term liquidity of its funds.
 To study and analysis the financial performance of the company.

7
 1.4 SCOPE OF THE STUDY

 The study of financial statements evaluation is confined to the financial position of

GAIL INDIA LTD.

 Financial statements evaluation is confined only for the period 5 years i.e, from 2012 to
2017.

 The financial statements evaluation is carried out on the basis of secondary data i.e, the
annual reports of GAIL INDIA LTD.

 To find out the financial stability of the organization using the different ratios.

 The study has been focused on ratio analysis, common size analysis, comparative
analysis and trend analysis in GAIL INDIA LTD.

8
 1.5 NEED FOR THE STUDY

Appropriate financial analysis is the key for the success of business organizations
without which we cannot anticipate a proper direction for the business. The present
study financial analysis of GAIL INDIA LTD helps me towards a real life scenario of
financial management so that can have a particular knowledge of ratio analysis
comparative statements, common size statement and trend analysis.

This certainly does through light on financial performance and it’s evaluate the
company. So that I can come out with application of theoretical knowledge and thereby
have practical insight into the financial management and thereby I come out with
meaningful finding and suggestion.

9
 1.6 RESEARCH METHODOLOGY

Methodology is a systematic procedure of collecting information in order to analyse and

verify a phenomenon. The data can be collected through principle sources.

They are as follows:-

 Primary Sources
 Secondary Sources

1.6.1 Primary sources

A primary source provides direct or first-hand evidence about an event, object, person,
or work of art. Primary sources include historical and legal documents, eyewitness
accounts, and results of experiments, statistical data, pieces of creative writing, audio
and video recordings, speeches, and art objects.

1.6.2 Secondary sources

This data is from the number of books and records of the company, the annual reports
published by the company and other magazines. The secondary data is obtained from
the following.

 Collection of required data from annual records, monthly records, internal Published
book or Profile of Gail India, Rajamahendravaram.
 Reference from text books and Journals and magazines relating to financial performance
and management
 Annual Reports of the company.

10
 1.7 LIMITATIONS OF THE STUDY

Though the project is completed successfully a few limitations may be there.

 The study is carried basing on the information and documents provided by the
organization and based on the interaction with the various employees of the respective
departments.
 The period of study that is 6 weeks is not enough to go in the detailed aspects of the
study.

 Since the procedure and polices of the company will not allow to disclose confidential
financial information, the project has to be completed with the available data given to
us.
 There was no scope of gathering current information as the auditing has been done at
the time of project work.
 Lack of knowledge. Some of the lack full-fledged knowledge of the concept and it’s
difficult to collect a specific opinion from them.
 Respondents may not provide accurate information due to various reasons.
 Time is a major constraint.

11
 2. PROFILE OF GAS INDUSTRY
2.1 HISTORY
Natural gas is nothing new. In fact, most of the natural gas that is brought out
from under the ground is millions and millions of years old. However, it was not until
recently that methods for obtaining this gas, bringing it to the surface, and putting it to
use were developed. Before there was an understanding of what natural gas was, it
posed a mystery to man. Sometimes, lightning strikes would ignite natural gas that was
escaping from under the earth’s crust. This would create a fire coming from the earth,
burning the natural gas as it seeped out from underground. These fires puzzled most
early civilizations, and were the root of myth and superstition. One of the most famous
of these flames was found in ancient Greece, on Mount Parnassus around 1000 B.C. A
goat herdsman came across what looked like a ‘burning spring’, a flame rising from a
fissure in the rock. The Greeks, believing it to be of divine origin, built a temple on the
flame. This temple housed a priestess who was known as the Oracle of Delphi, giving
out prophecies she claimed were inspired by the flame.

These types of springs became prominent in the religions of India, Greece, and Persia.
Unable to explain where these fires came from, they were often regarded as divine, or
supernatural. It wasn’t until about 500 B.C. that the Chinese discovered the potential to
use these fires to their advantage. Finding places where gas was seeping to the surface,
the Chinese formed crude pipelines out of bamboo shoots to transport the gas, where it
was used to boil sea water, separating the salt and making it palatable.

Britain was the first country to commercialize the use of natural gas. Around 1785,
natural gas produced from coal was used to light houses, as well as streetlights.

Manufactured natural gas of this type (as opposed to naturally occurring gas) was first
brought to the United States in 1816, when it was used to light the streets of Baltimore,
Maryland. However, this manufactured gas was much less efficient, and less
environmentally friendly, than modern natural gas that comes from underground.

12
Naturally occurring natural gas was discovered and identified in America as early as
1626, when French explorers discovered Native Americans igniting gases that were
seeping into and around Lake Erie. The American natural gas industry got its
beginnings in this area. In 1859, Colonel Edwin Drake (a former railroad conductor who
adopted the title ‘Colonel’ to impress the townspeople) dug the first well. Drake hit oil
and natural gas at 69 feet below the surface of the earth.

Most historians characterize this well as the beginning of the natural gas industry in
America. A two-inch diameter pipeline was built, running 5 and ½ miles from the well
to the village of Titusville, Pennsylvania. The construction of this pipeline proved that
natural gas could be brought safely and relatively easily from its underground source to
be used for practical purposes.

In 1821, the first well specifically intended to obtain natural gas was dug in Fredonia,
New York by William Hart. After noticing gas bubbles rising to the surface of a creek,
Hart dug a 27-foot well to try and obtain a larger flow of gas to the surface. Hart is
regarded by many as the ‘father of natural gas’ in America. Expanding on Hart’s work,
the Fredonia Gas Light Company was eventually formed, becoming being the first
American natural gas company.

During most of the 19th century, natural gas was used almost exclusively as a source of
light. Without a pipeline infrastructure, it was difficult to transport the gas very far, or
into homes to be used for heating or cooking. Most of the natural gas produced in this
era was manufactured from coal, rather than coming from a well. Near the end of the
19th century, with the advent of electricity, natural gas lights were converted to electric
lights. This led producers of natural gas to look for new uses for their product.

In 1885, Robert Bunsen invented what is now known as the Bunsen burner. He
managed to create a device that mixed natural gas with air in the right proportions,
creating a flame that could be safely used for cooking and heating. The invention of the
Bunsen burner opened up new opportunities for the use of natural gas in America, and
throughout the world. The invention of temperature-regulating thermostatic devices

13
 allowed for better use of the heating potential of natural gas, allowing the temperature
of the flame to be adjusted and monitored.

Without any way to transport it effectively, natural gas discovered pre-WWII was
usually just allowed to vent into the atmosphere, or burnt, when found alongside coal
and oil, or simply left in the ground when found alone.

One of the first major pipelines was constructed in 1891. This pipeline was 120 miles
long, and carried natural gas from wells in central Indiana to the city of Chicago.
However, this early pipeline was not very efficient at transporting natural gas. It wasn’t
until the 1920s that significant effort was put into building a pipeline infrastructure.
After World War II, new welding techniques, along with advances in pipe rolling and
metallurgy, further improved pipeline reliability. This post-war pipeline construction
boom lasted well into the ‘60s, and allowed for the construction of thousands of miles of
pipeline in America.

Once the transportation of natural gas was possible, new uses for natural gas were
discovered. These included using natural gas to heat homes and operate appliances such
as water heaters, ovens, and cook tops. Industry began to use natural gas in
manufacturing and processing plants. Also, natural gas was used to heat boilers used to
generate electricity. The expanded transportation infrastructure had made natural gas
easy to obtain, and it was becoming an increasingly popular energy choice. Find
additional detail on modern methods of natural gas exploration, extraction, and
transportation as well as more information on the many uses of natural gas today.

2.1.1 A BRIEF HISTORY OF REGULATION

In 1938, the U.S. government first regulated the natural gas industry. At the time,
members of the government believed the natural gas industry to be a ‘natural
monopoly’. Because of the fear of possible abuses, such as charging unreasonably high
prices, and given the rising importance of natural gas nationwide, the Natural Gas Act
was passed. This Act imposed regulations and restrictions on the price of natural gas to

14
protect consumers. Find more information on this Act, and legislation and regulation
that affect the natural gas industry.

In the 1970s and 1980s, a number of gas shortages and price irregularities indicated that
a regulated market was not best for consumers or the natural gas industry. Into the
1980s and early 1990s, the industry gradually moved toward less regulation, allowing
for healthy competition and market-based prices. These moves led to a strengthening of
the natural gas market, lowering prices for consumers and allowing for more natural gas
to be discovered. Although not as active as the 1990s, the beginning of the 21st Century
has brought with it significant regulation concerning gas quality, standards of conduct
for interstate pipelines, and price reporting.

Today, the natural gas industry is regulated by the Federal Energy Regulatory
Commission (FERC). While FERC does not deal exclusively with natural gas issues, it
is the primary rule making body with respect to the regulation of the natural gas
industry.

Competition characterizes the natural gas industry as it is known today. The

restructuring of the industry, and the move away from strict regulation, has allowed for
increased efficiency and technological improvements. Natural gas is now being
obtained more efficiently, cheaply, and easily than ever before. However, the search for
more natural gas to serve our ever growing demand requires new techniques and
knowledge to obtain it from hard-to-reach places. Learn more about the business side of
natural gas.

The natural gas industry has existed in this country for more than 150 years, and it
continues to grow. Restructuring and the move toward cleaner-burning fuels have
created an enormous market for natural gas across the country. Technologies are
continually being developed that allow Americans to use natural gas in new and
exciting ways. And new production techniques now allow us to produce natural gas
from shale formations. With all of the advantages of natural gas, it is no wonder that it
has become the fuel of choice in this country, and throughout the world.

15
2.1.2 EVALUATION OF INDIAN GAS AND OIL INDUSTRY
The story of oil exploration in India began in the dense jungles and swamps and river-
valleys of the north-eastern corner of the country. Lt. R. Wilcox, Major A. White, Capt.
Francis Jenkins, Capt. P.S. Haney, W. Griffith, W.Licut Bigger–they all saw at different
times petroleum seepages from the banks of river Dishing. Mr. C.A Bruce (1828) and
Mr. H.B. Medicos (1865) of the Geological survey of India also saw oil seepages while
prospecting for coal in upper Assam.

Barely seven years after Edwin L. Drake drilled the world's first oil well in 1859 at
Titusville, Pennsylvania, USA, in 1866; Mr. Good enough of McKellar, Stewart and
Company, Calcutta, drilled a hand-dug well of 102 feet at Nahorpung near Raipur area
of Upper Assam but failed to establish satisfactory production. In his second attempt on
26 March 1867, oil was struck at merely 118 feet (35.97-m) in Asia's first mechanically
drilled well at Mecum near Margherita area of Upper Assam.
However, the first well dug at Dingo field in Assam in September 1889 and completed
in November 1890 at depth of 662 feet by Assam Railways and Trading Company
Limited (AR&T Co. Ltd.), registered at London, is regarded as the first commercially
successful oil discovery (200 gallons per day). To add colour to geologic reasoning
legend was created that during the construction of a railway line by AR&T, in the year
1867, a herd of logging elephants returned to camp with their feet covered in oil after a
night time excursion to find food and water. This led men to trail to the salt lick where
seepages were prolific. Looking this, the elated English owner cried out to his men,
“Dig boy dig". Probably the name Dingo itself came from that word.
AR&T subsequently acquired a 77.7 square kilometre petroleum-rights concession in
the Mecum area of Assam, and by 1893 had drilled 10 wells at Dingo producing 757.08
litters/day. AR&T established Assam Oil Company (AOC) in 1899 with a capital of
£310,000 to take over the petroleum interests of AR&T, including the Dingo and
Mecum concessions and set up a small refinery at Margarita (Upper Assam) with a
capacity of 500 bop to refine the Dingo-oil. Thereafter, systematic drilling began in
1891 and two years later in 1901, Asia's first oil refinery was set up in at Dingo. It is
still functional and world's oldest operating refinery.

16
Failure to utilize geologic reasoning, promiscuous wild cutting, misguided investment
and nonchalance of the management towards technical support led to compounding of
errors by AOC which made the company technically and financially impotent. Later on
UK based Burma Oil Company (BOC) arrived in 1911 in Upper Assam (Burma Valley)
and in 1915, after acquiring Oil interest from Budderpore Oil Co. Ltd (formed by a
syndicate of Budderpore tea garden during 1911-13) began testing option in the
Badarpur structure in the Sumac valley (Upper Assam). Gradually by 1921, in a phase-
wise manner, BOC acquired petroleum interests of AOC.
Torsion balance which was successfully adapted for geophysical surveys of oil was
used at Bordubi (Assam) by a geophysical team in 1925. The Indian Co. "TATA
engineering co." has also drilled several wells in Jagatai, Gujarat and produced small
amount of gas in 1930s. In 1937, BOC jointly with British Petroleum (then Anglo
Iranian Oil Co.) and Shell proposed to Govt. of India to carry out a geophysical survey
of the important plain areas of India. The proposal was accepted and a new form of
grant known as geophysical license was issued by Assam Government. In Assam,
successful seismic survey was carried out in Naharkatia during 1937-39, triggering new
enthusiasm in oil search and it became forerunner of discoveries in Assam basins and
others also. The successful outcome of well NHK-1 in 1937 was vindication for
geophysical method in oil exploration.
The world knew importance of oil and after Independence; Indian leaders realized its
utility for rapid industrialization and security of nation. The company rule which were
earlier framed to satiate the raw material need of British Empire was re-framed. While
framing industrial policy 1948, the development of petroleum industry in the country
was given top priority.
By 1948, GSI has started geophysical survey in Cambay area. The first oil discovery in
independent India was made by AOC on 1953 in Nahorkatia and then in Moran in 1956
both in Upper Assam. The oil industry, after independence, remained operated by
foreign company for a considerable period. Burma Oil Company (BOC) kept its
position as largest company in India till end of its operation.
In 1955-56 a delegation led by Mr. K.D.Malviya, Minister of Natural Resources, visited
several European countries to study status of Oil industry in those countries and

17
facilitate training of Indian professionals. Foreign experts also visited India to share
their know-how. Erstwhile USSR helped to draw a detail plan for geological and
geophysical survey and drilling plan in 2nd five year plan (1956-57 & 1960-61).
With the intention of intensifying and spreading exploration to various parts of the
country a separate Oil and Natural Gas Directorate (ONGD) was set up in 1955, as a
subordinate office under the then Ministry of natural Resources and Scientific Research.
The department was constituted with a nucleus of geoscientists from Geological Survey
of India. But soon after its formation it was realized that the directorate cannot function
efficiently with its limited financial and administrative liberty and in early 1956 its
status was changed to a commission. In October 1959 the ONGC was made a statutory
body by an act of parliament delegating it more power but it remained under Ministry.
The job of ONGC was defined as "to plan promote, organize and implement programs
for development of Petroleum Resources and the production and sale of petroleum and
petroleum products produced by it, and to perform such other function as the central
government may, from time to time, assign to it".
ONGC systematically started its geophysical surveys on area considered prospective on
the basis of global analogy. Further, thrust was given for survey in area of Himalayan
foothills and adjoining Gang plains, alluvial tracts of Gujarat, upper Assam and basins
of Bengal. The exploratory drilling carried out in Himalayan foothill during 1957,
remained unsuccessful. Within a year of being formed, ONGC discovered oil at
Cambay. The giant Ankles war field in the state of Gujarat in 1960, Karol in 1961, Law
in 1964, Gemlike in 1968 and Gas discovery-Mahertibia in Rajasthan in 1969 were
discovered subsequently.
Meanwhile, in 18th February 1959, for development and production of Nahorkatia and
Moran prospects and to increase the pace of exploration in Assam, Oil India Private
Limited was incorporated as a rupee company to take over BOCs affairs in Assam. The
company was owned 2/3rd by AOC/BOC and 1/3rd by Government of India and in
1961 they became equal partners by transforming OIL into a JV company. OIL
discovered Kusijan oilfield in 1969 and Jorajan oilfield in 1972. Later, Eocene gas was
discovered by OIL in Tengakhat field of Assam in 1973.

18
Offshore exploration was initiated by ONGC in the form of experimental seismic survey
in 1962 in Gulf of Cambay and later in western offshore. Detailed seismic surveys in
western offshore resulted in a discovery of large structure on Bombay-offshore in 1972-
73 and drilling lead to India's biggest commercial discovery - Bombay High.
Encouraged by this discovery, exploration was furthered in entire western off-shore
including Kerala-Konkan basin and eastern offshore area. This led to large discovery of
Bassein and Neelam in western offshore and PY-3 &Ravva in Eastern offshore. OIL
also ventured from Assam to Orissa both in onshore and offshore. During 1979-89 it
went to Andaman offshore and Rajasthan onshore. By the end of 80s ONGC and OIL
has together drilled nearly 3100 wells totaling 4.9 million metres.
ONGC's geo scientific survey spread out to UP, Bihar, Tamil Nadu, Rajasthan, J & K,
Kutch and Andhra Pradesh. By mid 1980s ONGC successfully discover prospects in
Cauvery and KG basin. Kharsang oilfield was discovered by OIL in 1976 and in the
same year ONGC discovered one of India’s biggest gas find of 283.17 BCM in the
Bassein fields off Mumbai’s coast. Other gas fields discovered by ONGC were mid-
Tapti, south Tapti and B-55. In 1978, OIL ventured out of Assam into Orissa offshore
and onshore. OIL also ventures into offshore Andaman’s in 1979-89 and onshore
Rajasthan.
Till the end of 1970s, Indian E&P industry was dominated by the two National Oil
Companies (NOCs) - ONGC and OIL to whom PELs were granted on nomination basis.
Exploration was primarily confined to on land and shallow offshore. The strategic
initiative was taken by government in 1979 to attract foreign investment, technology
and capital to deal with future commitment and challenges of Indian oil economy by
offering 32 exploration blocks (17 offshore & 15 onshore). Government started offering
block systematically through bidding. These rounds are also known as Pre-NELP
Exploration rounds. The three rounds during 1980-1986 were not very successful.
By 1981 Government took over OIL and it became full-fledged PSU. In 1982, ONGC
made its biggest gas discovery in Gandhar, Cambay basin Gujarat and by 1986 KG
basin were put in global map with several substantial discoveries made. By the end of
1986, 3rd round of international bidding for exploration block were offered. OIL and
ONGC were offered 40% stake in JV if field was found viable. Few foreign companies

19
participated but there was no committed exploration or breakthrough discovery. The
foreshore terminal of IOC was commissioned in Madras (Chennai). However OIL and
ONGC's effort continued in several parts of India and by 1989 OIL discovered gas in
Tanot (Mata Temple) in Rajasthan and ONGC discovered south Heera in Mumbai
offshore.
In 1990, 4th round of bidding invited and for the first time, Indian companies were
allowed to participate with foreign companies. However no major discovery was made
with these partnerships. In 1991, Government of India (GoI) adopted liberalized
economic policy that led to de-licensing of core group including petroleum sector and
partial dis-investment of government share including other measures. As a result,
ONGC was re-organized as a Limited company (under the Company’s Act, 1956) from
Oil and Natural Gas Commission to Oil and Natural Gas Corporation Limited. To give
momentum to Petroleum sector in India, GoI came up with more lucrative offers in
1994. However this also led to disagreement in Production Sharing Agreement. In
couple of years, ONGC ventured into CBM in Damodar valley and explored EOR
options in heavy oil belt of North Gujarat. By 1996, Government conducted 5 rounds of
bidding and offered 126 blocks having area in the range of 1 square km to 50000 square
km. Beside National Oil Companies and Indian Private Companies, some important
companies like Shell, Enron, Amoco and Occidental participated in exploration and
contracts were awarded to them.
The government efforts particularly during 1991-1996 gave required thrust for opening
up Oil and Gas sector in India. After this, the process of opening the sector became
more streamlined. Many private players also joined in development of this industry.
Hindustan Oil Exploration Company (HOEC) which started its E & P venture in 1991
was among few such initial domestic private players.
In view of the liberalized policy adopted by GoI, a need for an independent upstream
regulatory body called the Directorate General of Hydrocarbons (DGH) was envisaged
to oversee and review the oilfield development programs so as to conform to sound
reservoir engineering practices in line with national interests. Thus, DGH was formed
vide GoI resolution dated 08.04.1993.

20
NOC are required to compete on an equal footing with Indian and foreign comp
anies to secure Petroleum Exploration Licenses (PELs). Nine rounds of bids have so far
been concluded under NELP, in which production sharing contracts for 254 exploration
blocks have been signed.
With huge scope of activities and development in Oil and Gas sector in India, a lot
of history in this sector is yet to be written.
1889: W.L.Lake of Assam Railway and Trading Co. (AR & T Co) started Digboi Well
No-1 Lake used to urge his men “Dig boy, dig” and hence the name “Digboi” The
discovery of the ‘Digboi Oil field’ in Upper Assam was a landmark in the history of oil.
1899: AR&T Co formed a new company Assam Oil Company (AOC) and set up a
small refinery at Margharita (Upper Assam) with a capacity of 500 bopd to refine the
Digboi-oil.
1901: Digboi refinery commissioned.
1911: Burmah Oil Company (BOC) arrives on the Indian scene.
1921: Burmah Oil Company (BOC) takes over Assam Oil Company (AOC).
1925: India’s first attempt to use geophysics in its search for oil with a Torsion balance
survey in the Bordubi area.
1937-39: Seismic surveys were initiated in and a major ‘High’ was located at
Nahorkatiya in Assam the successful outcome of NHK-1 was a triumphant vindication
of the geophysical method of exploration. Nahorkatiya triggered a new wave of
enthusiasm in the search for oil in the country and became the forerunner of discoveries
not only in Assam basin but also in other basins.
1948: Geological Survey of India (GSI) started geophysical surveys in Cambay area.
1956: Moran oil field discovered by AOC.August 14, 1956 Oil & Natural Gas
Commission (ONGC) was established. October 15, 1959
ONGC becomes autonomous body, under an act of parliament.
1959: Oil India Private Ltd (OIL) incorporated and registered as a Rupee Company.
1960: Oil struck at Ankleswar in Gujarat and Rudrasagar in Assam.
1961: GOI and BOC become equal partners in OIL.
1962: The first public sector refinery comes up at Guwahati.

21
1963: World’s first crude oil conditioning plant commissioned at Nahorkatiya. India’s
first deviated well NHK122 drilled by OIL.
1963: ONGC started offshore seismic surveys in Gulf of Cambay.
1968: Oil discovered in Geleki by ONGC.OIL commissioned the 1158 km oil pipeline
to Guwahati and Barauni refineries.
1970: India’s first offshore well spudded in the Gulf of Cambay.
1974: Drillship SagarSamrat strikes oil in Bombay High.
1974: Bombay high discovered.
1981: First well spudded in Godavari offshore.14 October 1981 OIL becomes a
Government of India enterprise.
1983-84: Gas struck at Razole in Andhra Pradesh and Gotaru in Rajasthan.
1984: First Early Production system (EPS) commences in Gujarat.
1984: Gas was struck at Gotaru in Rajasthan by ONGC.
1986-87: ONGC strikes oil in the Tapti offshore area and Namti structure (Assam).
1988-89: Commercial gas finds in Rajasthan by OIL Nada field in Gujarat discovered.
1989-90: Western offshore production reaches a peak of 21.72 MMT.
1989-90: South Heera field discovered in Mumbai offshore.
1998: New Exploration Licensing Policy (NELP) launched and 48 Exploration blocks
offered under round-I.
2000: Second round of New Exploration Licensing Policy launched and 25 Exploration
blocks offered.
2001: One CBM block awarded on nomination basis.
2002: Third round of New Exploration Licensing Policy launched and 27 Exploration
blocks offered.
2002: First round of CBM blocks bidding held and 5 blocks awarded.
2003: Fourth round of New Exploration Licensing Policy launched and 24 Exploration
blocks offered.
2003: Two CBM blocks awarded on nomination basis.
2004: Second round of CBM blocks bidding held and 5 blocks awarded.

22
 2005: Fifth round of New Exploration Licensing Policy launched and 20 Exploration
blocks offered.
2006: Sixth round of New Exploration Licensing Policy launched and 55 Exploration
blocks offered.
2006: Third round of CBM blocks bidding held and 10 blocks awarded.
2007: Seventh round of New Exploration Licensing Policy launched and 57 Exploration
blocks offered.
2010: Fourth round of CBM blocks bidding held and 7 blocks awarded.
2010: Eighth round of New Exploration Licensing Policy launched and 32 Exploration
blocks awarded.
2012: Ninth round of New Exploration Licensing Policy launched and 14 Exploration
blocks awarded.
2016: Discovered Small Field Round Launched on May 25th 2016

2.2 GROWTH OF GAS INDUSTRY IN INDIA

2.2.1 Oil and Gas Industry in India
2.2.1.1 Oil supply and demand in India
 Oil consumption is estimated to expand at a CAGR of 3.3 per cent during FY2008–16E
to reach 4.0 mbpd by 2016
 Due to the expected strong growth in demand, India’s dependency on oil imports is likely
to increase further
 Rapid economic growth is leading to greater outputs, which in turn is increasing the
demand of oil for production and transportation
 With rising income levels, demand for automobile is estimated to increase.

23
 2.2.2 Introduction
The oil and gas sector is among the six core industries in India and plays a major role in
influencing decision making for all the other important sections of the economy.
In 1997–98, the New Exploration Licensing Policy (NELP) was envisaged to fill the
ever-increasing gap between India’s gas demand and supply. India’s economic growth
is closely related to energy demand; therefore the need for oil and gas is projected to
grow more, thereby making the sector quite conducive for investment.
The Government of India has adopted several policies to fulfil the increasing demand.
The government has allowed 100 per cent Foreign Direct Investment (FDI) in many
segments of the sector, including natural gas, petroleum products, and refineries, among
others. Today, it attracts both domestic and foreign investment, as attested by the
presence of Reliance Industries Ltd (RIL) and Cairn India.

2.2.2.1 Market Size

India is expected to be one of the largest contributors to non-OECD petroleum
consumption growth globally. Domestic refiners’ import of crude oil increased 9.1 per
cent year-on-year to around 18.81 million metric tons during August 2016.1
Total fuel consumption is expected to grow around 5-6 per cent in FY 2016-17 and
thereafter, while consumption of gasoline is expected to grow around 9-10 per cent over
the medium term, supported by robust passenger vehicle sales amid low crude oil
prices.2
India is the fourth-largest Liquefied Natural Gas (LNG) importer after Japan, South
Korea and China, and accounts for 5.8 per cent of the total global trade.3Domestic LNG
demand is expected to grow at a CAGR of 16.89 per cent to 306.54 MMSCMD by 2021
from 64 MMSCMD in 2015.
The country's gas production is expected to touch 90 Billion Cubic Metres (BCM) in
2040 from 35 BCM in 2013. Gas pipeline infrastructure in the country stood at 15,808
km in December 2015.
State-owned Oil and Natural Gas Corporation (ONGC) dominates the upstream segment
(exploration and production), producing around 22.37 MT of crude oil, which is
approximately 60.5 per cent of the country’s 36.95 MT oil output, as of March 2016.

24
2.2.2.2 Investment
According to data released by the Department of Industrial Policy and Promotion
(DIPP), the petroleum and natural gas sector attracted FDI worth US$ 6.67 billion
between April 2000 and March 2016.
Following are some of the major investments and developments in the oil and gas
sector:
 Investments in India's oil and gas sector will likely touch Rs 2.5-3 trillion (US$ 37.28-
44.73 billion) over the next few years, which will help raise the share of gas in the
country’s primary energy mix to 15 per cent by 2030, as per British multinational oil
and gas company BP Group.
 The Oil and Natural Gas Corporation (ONGC) has launched a start-up fund of Rs 100
crore (US$ 14.91 million) on its Diamond Jubilee year to encourage and promote new
ideas related to oil and gas sector, thereby giving a fillip to Government's Startup India
initiative.
 Yara International ASA, a Norwegian chemical company, plans to acquire Tata
Chemicals Limited’s Babrala urea plant and distribution business in Uttar Pradesh for
about Rs 2,670 crore (US$ 398.13 million), on a debt and cash free basis.
 Heraeus, one of the world’s largest recyclers of reforming catalyst, has opened a new
facility at Udaipur which will allow companies to benefit from less transport costs,
easier file processing, faster recycling times, better transparency and overall improved
costing for catalyst recycling in the country.
 Honeywell International Inc, the US-based technology and manufacturing solutions
provider, has unveiled a new refining technology in Gurgaon, which will be dedicated
to helping Indian refiners get more clean transportation fuel, reduce imports of crude oil
and produce environmentally preferable diesel fuels.
 Royal Dutch Shell Plc, which has already invested US$ 1 billion in India, has planned
further investments in upstream and downstream segments of oil and gas sector, and is
also doubling its employee base at its Shell Technology Centre Bangalore (STCB).

25
 India and Iran have signed agreements related to crude oil imports, petrochemical
complexes and gas field development, in addition to India committing to invest US$ 20
billion in the port of Chabahar in Southeastern Iran.
 Kolkata-based Dhunseri Petrochem Limited and Thailand's Indorama Ventures Public
Company Limited have agreed to enter into an equal joint venture to manufacture and
sell polyethylene terephthalate (PET) resins for Indian market.
 State-run Indian Oil Corporation Ltd (IOCL) plans to invest Rs 34,000 crore (US$ 5.07
billion) on a petrochemical complex at Paradeep in the state of Odisha, which is
expected to be commissioned by 2021.
 PetrogasPvt Ltd, a joint venture of Isomeric Holdings bhd of Malaysia and LEPL Venture
Pvt Ltd of India, will collaborate with Krishnapatnam Port Co Ltd and the Government
of Andhra Pradesh, to set up a Liquefied Natural Gas (LNG) regassification and floating
storage terminal at Krishnapatnam Port in Nellore district with an investment of around
Rs 3,000 crore (US$ 447.34 million).
 India's consumption of petroleum products which include domestic and industrial fuels
like petrol, diesel, cooking gas, kerosene, naphtha, etc., rose 17.7 per cent to 15.2
million tonne (MT) in October 2015 from 12.9 MT in October 2014, as per Petroleum
Planning and Analysis Cell (PPAC) data. The increase in consumption can be mainly
attributed to India's high economic growth, low fuel prices, festival season demand.
 Essar Projects, the engineering, procurement & construction (EPC) arm of Essar Group,
in a joint venture with Italy’s Saipem has won a US$ 1.57 billion contract from Kuwait
National Petroleum Company (KNPC) for setting up part of the Al-Zour Refinery
Project in Kuwait.
 ONGC Videsh Ltd (OVL), the foreign arm of state-owned petroleum explorer Oil and
Natural Gas Corporation (ONGC), has planned to acquire up to 15 per cent stake in
CSJC Vankorneft, which owns Russia's second-largest oil and gas field.
 Kirloskar Oil Engines Ltd (KOEL) and MTU Friedrichshafen, GmbH signed a
memorandum of understanding (MoU) towards exclusive cooperation on the building
and commissioning of emergency diesel gensets (EDG).
 CDP Bharat Forge GmbH acquired 100 per cent equity shares of
MecaniqueGeneraleLangroise (MGL) for € 11.8 million (US$ 12.91 million) to
26
 consolidate Bharat Forge’s position in the oil and gas sector by enhancing service
offerings and geographical reach.
 Technip won a € 100 million (US$ 109.37 million) contract from ONGC to build an
onshore oil and gas terminal in Andhra Pradesh.

2.2.2.3 Government Initiatives

Some of the major initiatives taken by the Government of India to promote oil and gas
sector are:
 The Ministry of Mines plans to restart operations in several hundred mines across the
country in order to raise the share of mining and quarrying industry in India’s Gross
Value Addition (GVA) by one percentage point from 2.4 per cent at present, over the
next two-to-three years.
 The Union Cabinet has approved the National Mineral Exploration Policy (NMEP),
which will pave the way for auction of 100 prospective mineral blocks to attract private
sector in exploration, besides involving state-run agencies.
 Mr Dharmendra Pradhan, Minister of State for Petroleum and Natural Gas and Mr
Prakash Javadekar, Minister of State for Environment, Forests and Climate Change
have launched a pilot programme, aimed at introducing compressed natural gas (CNG)
as fuel for two-wheelers.
 The Ministry of Petroleum and Natural Gas is seeking to enhance India's crude oil
refining capacity through 2040 by setting up a high-level panel, which will work
towards aligning India's energy portfolio with changing trends and transition towards
cleaner sources of energy generation.
 The Ministry of New and Renewable Energy (MNRE) plans to launch an integrated bio
energy mission with an investment of Rs 10,000 crore (US$ 1.49 billion) from FY
2017-18 to FY 2021-22, aimed at enhancing the use of bio-fuels like ethanol and biogas
and reducing consumption of fossil fuels.
 The Hydrocarbon Sector Skill Council (HSSC), which was set up by the Government of
India under its Skill India initiative, plans to train over 1.9 million people in the oil and
gas sector over the next 10 years, to cater to the rising skill needs of the industry.

27
 The Union Cabinet has allowed state-owned oil firms to evolve their own crude oil
import policies which involve freedom to choose source companies as well as pricing
for their crude oil imports, thus allowing them to compete in the market effectively.
 In a major drive to enhance the petroleum and hydrocarbon sector, Government of India
has introduced initiatives like the Hydrocarbon Exploration Licensing Policy (HELP);
Marketing and Pricing freedom for new gas production, grant of extension to the
Production Sharing Contracts and assigning the Ratna offshore field award to Oil and
Natural Gas Corporation (ONGC) for development.
 Mr Dharmendra Pradhan, Minister of State (Independent Charge) for Petroleum and
Natural Gas has released the Hydrocarbon Vision 2030 for North East India, with the
objective of leveraging the north-eastern region’s hydrocarbon potential; enhance access
to clean fuels, improve availability of petroleum products, and facilitate economic
development and to involve local population in the economic activities in this sector.
 The Government of India plans to incentivize gas production from deep-water, ultra-
deep-water and high pressure-high temperature areas which are presently not exploited
on account of higher cost and risk, and also to augment the investment in nuclear power
generation in the next 15 to 20 years.
 The Government of India is in the process of identifying at least 50 potential blocks of
100 sq. km and above to be given to companies for bringing private investment in the
mineral exploration sector. The Ministry of Petroleum and Natural Gas has put up for
comments a draft policy, to opt for revenue-sharing model while auctioning future oil
and gas blocks for exploration to private companies, compared to production-sharing
mode earlier, in order to make the process more transparent and market-oriented.
 The Ministry of Petroleum and Natural Gas has announced a new 'Marginal Fields
Policy', which aims to bring into production 69 marginal oil and gas fields with 89
million tonnes or Rs 75,000 crore (US$ 11.18 billion) worth of reserves, by offering
various incentives to oil and gas explorers such as exemption from payment of oil cess
and customs duty on machinery and equipment.
 Government of India entered into bilateral discussion with Norway to extend co-
operation between the two countries in the field of oil and natural gas and hydrocarbon
exploration.

28
 2.3 COMPANY PROFILE

GAS AUTHORITY OF INDIA LIMITED. (GAIL) was incorporated in August 1984 as

a Central Public Sector Undertaking (PSU) under the Ministry of Petroleum & Natural
Gas (MoP&NG), with the mission of accelerating and optimizing the effective and
economic use of Natural Gas and its fractions for the benefit of the national economy.
As a Public Sector Undertaking, the President of India holds more than 57% of the
shares the company. GAIL (India) Limited, India’s largest Natural Gas Company is one
of the seven Maharatna Public Sector Undertakings (PSUs) and the youngest PSU to be
accorded Maharatna status.

The company was initially given the responsibility of construction, operation and
maintenance of the 1800 Km long cross country Hazira - Vijaypur – Jagdishpur (HVJ)
Natural Gas pipeline project. At that time, it was one of the largest cross-country
Natural Gas pipeline projects in the world.

GAIL, having started as a Gas Transmission Company during the late eighties, has
grown organically by building a large network of Natural Gas pipelines covering over
11,000 km; two LPG Pipelines covering more than 2,000 km; six Gas Processing plants
for production of LPG and other liquid hydrocarbons, with a combined production
capacity of 1.39 MMTPA, and a gas based integrated petrochemical plant of
capacity 410,000 TPA of polymer, which is further being expanded to installed capacity
of 810,000 TPA. The Company also has 70% equity share in Brahmaputra Cracker and
Polymer Limited (BCPL) which is setting up a 280,000 TPA polymer plant in Assam.
Further, GAIL is a co-promoter with 15.5% equity stake in ONGC Petro-additions
Limited (OPaL) which is implementing a green field petrochemical complex of 1.4
MMTPA polymer capacity at Dahej in the State of Gujarat.

Keeping in mind the growth and consolidation requirements, the company has
integrated upstream into the business of Exploration & Production with participating
interests in several blocks awarded under New Exploration Licensing Policy (NELP)
bidding rounds of Government of India. GAIL is currently participating in 15 E&P

29
 Blocks, in basins such as Assam-Arakan (2), Andaman (1), Cambay (4), Cauvery (2),
Gujarat Kutch (2), Mahanadi (1), Myanmar (2) and Rajasthan (1). GAIL has partnership
in these blocks with various companies such as ONGC (3), OIL (1), GSPC (2), BPRL
(1), Hardy Exploration & Production (1), JOGPL (1), ENI (1) and Daewoo (2) as
Operators. Out of these 15 E&P blocks, 2 blocks are overseas (A-1 and A-
3 blocks in Myanmar).
Hydrocarbon discoveries are in place in 7 E&P blocks. Blocks with hydrocarbon
discoveries are: CB-ONN-2000/1, CB-ONN-2003/2 (Cambay Onland in Gujarat),
Block A-1 and A-3 Myanmar, AA-ONN-2002/1 (Tripura Onland), MN-OSN-2000/2
(Mahanadi Offshore) and CY-OS/2(CauveryOffshore).

Production of crude oil is in progress from Cambay Onland blocks CB-ONN-2000/1

and CB-ONN-2003/2 @ 800 barrels per day. Production of gas is in progress in 2
blocks in Myanmar (A-1 & A-3). Development activities have been initiated in Tripura
Onland Block (AA-ONN-2002/1).

GAIL is also a member of National Gas Hydrate Programmed (NGHP) being

coordinated by DGH and is actively involved in activities related to Gas Hydrate
exploration.

GAIL has also integrated downstream into the high growth retail City Gas Distribution
business both in India and abroad. GAIL is today an integrated energy company in the
hydrocarbon sector with focus on gas and beyond.

2.2.3 Global context and International forays

GAIL has overseas presence in five countries. The Company has a wholly owned
subsidiary, GAIL Global (USA) Inc. (GGUI) in USA. This US subsidiary has formed a
JV with Carrizo Oil & Gas Inc. to acquire stake in its Eagle Ford Shale acreage. GGUI
has formed subsidiary, GAIL Global (USA) LNG LLC (GGULL) which has booked 2.3
MMTPA capacities in Dominion Cove Point LNG liquefaction project and also signed a

30
Gas Sale and Purchase Agreement (GSPA) with WGL Midstream Inc. for procurement
of corresponding volume of Natural Gas.

GAIL has another wholly-owned subsidiary company viz. GAIL Global (Singapore)
Pte. Ltd. in Singapore for trading in LNG & Petrochemicals and for undertaking
overseas investments.

GAIL is equity partner in A-1 & A-3 E&P blocks in Myanmar where GAIL has 8.5%
participating interest. Besides, GAIL has 4.2% equity partnership in South East Asia
Gas Pipeline Company (SEAGP) which is transporting gas from Myanmar to China
from these blocks. GAIL has made investments in three companies in downstream
business in Egypt and China.

GAIL has executed a long-term LNG Sale and Purchase Agreement with Sabine Pass
Liquefaction LLC for purchase of 3.50 Million Tons per Annum (MMTPA) of LNG
from Sabine Pass Liquefaction terminal project located in Cameron Parish, Louisiana,
and USA. GAIL has also signed a long-term agreement with Gazprom marketing and
Trading Singapore for supply of 2.5 MMTPA of LNG from Russia.

GAIL has also signed a GSPA to source 38 MMSCMD of natural gas through
transnational pipeline from Turkmenistan and is scouting for opportunities along natural
gas value chain in North America, Africa and South East Asia.

31
2.2.4 GAIL assets at a glance

Natural Gas pipeline

More than 11,000 km with capacity of 206 MMSCMD
network

LPG pipeline network More than 2,000 km capacity of 3.8 MMTPA

LPG Gas Processing Plants 6 LPG Plants with capacity of 1.39 MMTPA LHC productions.

1 Petrochemical Complex with capacity of 410,000 TPA of

Petrochemical Complex
Polymers
No. of Exploration & 15 (13 Domestic bocks and 2 Overseas: A-1 & A-3 in
Production Blocks Myanmar)
No. of Associates/ JVs 17
No. of subsidiaries 5
Optic Fiber Cable network 13,000

32
 2.4 MISSION AND VISION
2.4.1 MISSION

To accelerate and optimize the effective and economic use of natural gas and its
fractions for the benefit of the national economy.

2.4.2 VISION
Be the leading company in Natural Gas and beyond, with Global Focus, Committed to
Customer Care, Value Creation for all Stakeholders and Environmental Responsibility.

2.5 HISTORY
GAIL (India) Limited was incorporated in August 1984 as a Central Public Sector
Undertaking (PSU) under the Ministry of Petroleum & Natural Gas (MoP&NG). The
company was formerly known as Gas Authority of India Limited. It is India's principal
gas transmission and marketing company. The company was initially given the
responsibility of construction, operation and maintenance of the Hazira – Vijaypur –
Jagdishpur (HVJ) pipeline project. It was one of the largest cross-country natural gas
pipeline projects in the world. This 1750-kilometre-long pipeline was built at a cost
of ₹17 billion (US$250 million) and it laid the foundation for development of market for
natural gas in India. GAIL commissioned the 1,750 kilometers (1,090 mi) Hazira-
Vijaipur-Jagdishpur (HVJ) pipeline in 1991. Between 1991 and 1993, three liquefied
petroleum gas (LPG) plants were constructed and some regional pipelines acquired,
enabling GAIL to begin its gas transportation in various parts of India.

GAIL began its city gas distribution in New Delhi in 1997 by setting up
nine compressed natural gas (CNG) stations.

In order to secure gas for its mainstream business, the Exploration and Production
department was created. Today GAIL is a partner in the Dawoo-OVL led consortium in
two offshore blocks in Myanmar which have made a gas discovery. The bulk of its
blocks are located in India in the prolific basins of Cambay, Assam-Arakan, Mahanadi,
Krishna Godavary deep water and on land, Cauvery on land and deep water and western
offshore. It is actively scouting for foreign blocks both exploratory or discovery.

33
 GAIL today has reached new milestones with its strategic diversification into
petrochemicals, telecom and liquid hydrocarbons besides gas infrastructure. The
company has also extended its presence in power, liquefied natural gas re-gasification,
city gas distribution and exploration & production through participation in equity and
joint ventures. Incorporating the new-found energy into its corporate identity, Gas
Authority of India was renamed GAIL (India) Limited on 22 November 2002.

GAIL (India) Limited has shown organic growth in gas transmission through the years
by building large network of trunk pipelines covering length of around 10,700
kilometres (6,600 mi). Leveraging on the core competencies, GAIL played a key role as
gas market developer in India for decades catering to major industrial sectors like
power, fertilizers, and city gas distribution. GAIL transmits more than 160 mm of gas
through its dedicated pipelines and have more than 70% market share in both gas
transmission and marketing

2.6 NAGARAM INCIDENT

After 30 years of incident-free gas transportation by GAIL, on 27 June 2014, 22 people
were killed after the trunk of the Tatipaka-Kondapalli pipeline operated by GAIL
exploded following a gas leak near Nagaram in East Godavari district about 600 km
from Hyderabad. While the explosion killed some persons in nearby houses, the
resulting fire engulfed several other houses adjacent to the pipeline trapping residents,
many of whom were burnt alive.

The pipeline, built in 2001 to move processed, dry natural gas to a Lanco power plant,
transported gas and water and condensate contaminants coming from ONGC's wells.

An oil ministry probe concluded that a "collective failure" between the parties involved
with ensuring compliance with safety measures had allowed water and condensate to
corrode the pipeline to the extent that gas was able to collect at the surface where the
lighting of a stove nearby caused an explosion. The report said of the Petroleum and
Explosives Safety Organization (PESO) that there was "no evidence of any efforts" by
the organization to enforce the utilization of a gas dehydration unit to remove water and

34
 liquids that lead to the pipeline corrosion. Both the Indian Petroleum and Natural Gas
Regulatory Board and the Oil Industry Safety Directorate which also audited the
pipeline for gas content had reported no significant findings.

2.7 INFRASTRUCTURE

GAIL owns the country's largest pipeline network, the cross-country 2300 km Hazira-
Vijaipur-Jagdishpur pipeline with a capacity to handle 33.4 MMSCMD gas. Today the
company owns and operates more than 11000 km long cross country natural Gas
Pipeline in India having presence in 22 states in the country. It also owns and operates
more than 2000 km long LPG pipelines in the country and has the pride to operate one
of the world's longest exclusive LPG pipeline in the country from Jamnagar in Gujarat
to Loin in Uttar Pradesh. The company also owns and operates seven mega LPG
recovery plants in the country today and has to its credit almost 20% of domestic LPG
produced and supplied for the domestic usage through its sisters PSUs like IOCL, BPCL
and HPCL. GAIL is one of the major petrochemical conglomerates in the country today
with India's largest gas based petrochemicals in operation since 1999. In petrochemicals
it has its own gas based integrated petrochemical plant and also the ownership of 70%
in dual fuel petrochemicals in Assam, Brahamaputra Cracker and Polymer Limited and
one of the major equity partners in Opal.

The company supplies gas to power plants for generation of over 4,000 MW of power to
fertilizer plants for production of 10 million tonnes of urea and to several other
industries. The regional pipelines are in Mumbai, Gujarat, Rajasthan, Andhra Pradesh,
Tamil Nadu, Pondicherry, Assam, Tripura, Madhya Pradesh, Haryana, Uttar Pradesh
and Delhi. The Company has established six gas processing (LPG) plants, four along
the HVJ pipeline two at Vijaipur, MP, one at Vaghodia, Gujarat and Auraiya, UP and
one each in Lakwa, Assam and Usar, Maharashtra. These plants have the capacity to
produce nearly 1 million tpa of LPG. GAIL has also set up several compressor stations
for boosting the gas pressure to desired levels for its customers and internal users.

GAIL also possesses a vast telecommunication network that contributes significantly to

the high level of system reliability of operations, on-line real time communication and
35
 monitoring higher productivity. GAIL became the first Infrastructure Provider Category
II Licensee and signed the country's first Service Level Agreement for leasing
bandwidth in the Delhi-Vijaipur sector in 2001, through its telecom business GAILTEL.

GAIL Project offices have been set up where its plants, complexes, etc. are located.

In 2001, GAIL commissioned the world’s longest and India's first cross country LPG
transmission pipeline from Jamnagar to Loni.

2.8 NATURAL GAS TRANSMISSION

GAIL has built a network of trunk pipelines covering length of around 11,000 km.
Leveraging on the core competencies, GAIL played a key role as gas market developer
in India for decades catering to major industrial sectors like power, fertilizers, and city
gas distribution. GAIL transmits more than 160 MMSCMD of gas through its dedicated
pipelines and has more than a 70% market share in both gas transmission and
marketing.

However, there are regional imbalances in the gas supply across the country. To bridge
this gap in infrastructure, the Ministry of Petroleum and Natural Gas, in 2007,
authorized five new pipelines to GAIL covering a length of over 5,500 km.

36
Length km/ capacity in MMSCMD

S. Length km/ capacity in

Pipeline Commissioning
no. MMSCMD

1. DadriBawanaNangal* 610 km/31 MMSCMD 2011–12

2 ChainsaJhajjarHissar** 300 km/35 MMSCMD 2011–12

3. JagdishpurHaldia 2000 km / 32 MMSCMD 2013–14

4. Dabhol Bangalore[10] 1386 km/ 16 MMSCMD 2013–14

Kochi Kanjirikkod
5. 860 km / 16 MMSCMD 2012–13
Bangalore

TOTAL 5156 km / 130 MMSCMD

• Phase-I completed till Bawana

•• Phase-I completed till Sultanpur In addition to these, GAIL is augmenting the

capacities of its two existing pipelines, viz. Dahej– Vijaipur pipeline and Vijaipur –
Dadri pipeline. All these projects are progressing well and are expected to be completed
in phases by 2013 -14 or so. When these pipelines are commissioned, the capacity of
GAIL pipeline system is expected to increase from 157 MMSCMD at present to over
300 MMSCMD and cover over 14,000 km.

2.9 GAS MARKETING

Since inception in 1984, GAIL has been the undisputed leader in the marketing,
transmission and distribution of natural gas in India. As India's leading natural gas

37
 major, it has been instrumental in the development of the natural gas market in the
country.

GAIL sells around 51% (excluding internal usage) of the natural gas sold in the country.
Of this, 37% is sold to the power sector and 26% to the fertilizer sector. GAIL is
supplying around 60 MMSCMD of natural gas from domestic sources to customers
across India. These customers range from the smallest of companies to mega power and
fertilizer plants. GAIL has adopted a gas management system to handle multiple sources
of supply and delivery of gas in a co-mingled form and provide a seamless interface
between shippers, customers, transporters and suppliers. GAIL is present in 11 states:
Gujarat, Rajasthan, Madhya Pradesh, Delhi, Haryana, Uttar Pradesh, Maharashtra,
Tamil Nadu, Andhra Pradesh, Assam, and Tripura. They are further extending their
coverage to states of Kerala, Karnataka, Punjab, Uttarakhand, West Bengal and Bihar
through their upcoming pipelines.

2.10 LNG
By the end of 2009–10, the gas consumption in India stood at 165 MMSCMD with
LNG occupying 15% (25 MMSCMD) of the entire gas market. The proportion of
imported LNG is expected to increase to anywhere between 20% and 30% by 2015.
GAIL has been playing a principal role on its part in ensuring that the government's
objective of achieving energy security is achieved through a judicious mix of energy
portfolio.

As a dominant player in the gas markets, GAIL play a major role in sourcing of LNG
and creation of the pipeline infrastructure to form an efficient national grid that will
ensure connectivity to all demand centres. To achieve these objectives, GAIL is actively
pursuing LNG sourcing from major LNG producers/sellers all across the globe and has
been adopting a strategy to have a mixed portfolio of spot, short/mid-term, and long-
term deals. To ensure long-term supplies in the past, GAIL has promoted Petronet LNG
Ltd (PLL), along with oil majors Oil and Natural Gas Corporation (ONGC), Indian Oil
Corporation (IOC) and Bharat Petroleum Corporation Limited (BPCL) for the import of
LNG into India. PLL is importing 7.5 MMTPA of LNG from Qatar for its Dahej
Terminal on long term contract basis. PLL will also be importing 1.44 MMTPA from

38
 Gorgon LNG project, Australia for its Kochi Terminal. GAIL is also the sole transporter
of the entire RLNG and a major off-taker from both these contracts.

Further, from time to time GAIL had imported LNG on a spot basis to cater to
additional gas demand in India. GAIL imported its first spot cargo from Algeria in May
2006 and within a shorter span has gone on to become a major importer of LNG in Asia.
GAIL had imported five spot cargoes in the first half of 2011. In addition, GAIL has
imported 1 LNG cargo from the international market through PLL.

GAIL had also inked a short term deal with Marubeni Corporation to purchase up to
0.50 MMTPA of LNG on a medium term basis and has already received three LNG
cargoes under the contract. The government of India has entrusted GAIL with the
responsibility of reviving the LNG terminal at Dabhol in Maharashtra, as well as
sourcing LNG for the terminal. GAIL is exploring all the possible options for sourcing
around five MMTPA of LNG for the Dabhol Terminal. GAIL has stepped up efforts to
source LNG on a long-term basis from various projects across the globe including
Qatar, Australia, Russia and US.

Until now GAIL has signed 23 master sales and purchase agreements (MSPA) with
various LNG suppliers in its endeavour to source spot and medium term from time to
time. GAIL is also in talks to add six to eight additional suppliers under the umbrella.

2.11 LIQUID HYDROCARBONS

GAIL is marketing gas processing units (GPUs) products, namely liquefied petroleum
gas, propane, pentane, naphtha and by-products of polymer plant, namely MFO,
propylene and hydrogenated C4 mix. LPG is being sold exclusively to PSU oil
marketing companies (OMCs) while other products are sold directly to customers in the
retail segment.

GAIL is India's major producer of propane, popularly known as GAIL Propane. It is an

eco-friendly fuel and provides an effective way of reducing pollution and increasing
productivity.

GAIL produces and markets pentane. It is primarily being used for reprocessing into
ISO normal and commercial pentane used in EPS, PU, LAB industry.

39
 Acetone and phenol are being produced from propylene by blending with benzene
which are mainly used in the pharmaceutical industry.

MFO is mainly used as fuel for heating, paint spraying, and furniture
polishing. Naphtha is primarily used by power, fertilizer, steel and petrochemical units.
In power, steel units it is used as a fuel, whereas in petrochemical, chemical, fertilizer
units it is used as a feedstock.

GAIL is operating seven gas processing units (GPU) located at Vijaipur (two units),
Auraiya, Vaghodia, Usar, Lakwa and Gandhar plants for production of LPG and GCU
at Pata plant for production of polymer. In the process of production of main products,
such as LPG and polymer through GPU/GCU except Usar, the following by-products-
liquid hydrocarbons (LHC) are produced:

2.12 LPG PRODUCTION AND TRANSMISSION

Liquefied petroleum gas (LPG) is the most widely used domestic and commercial fuel
in India. Over the past four years GAIL has emerged as one of the major LPG producers
in the country. Around 90 per cent of the LPG is consumed in India as fuel by the
household sector, while the balance is sold to industrial and commercial customers.
GAIL has seven LPG Plants, two at Vijaipur and one at Vaghodia, and one each in
Lakwa (Assam), Auraiya (UP), Gandhar (Gujarat) and Usar (Maharashtra), producing
over 1 million TPA LPG and other
liquid hydrocarbons. LPG is sold in bulk to LPG retailing companies such IOCL, BPCL
, HPCL and other liquid hydrocarbon products are sold to industries.

GAIL is the first company in India to own and operate pipelines for LPG transmission.
It has 1,900 km LPG pipeline network 1,300 km of which connects the western and
northern parts of India and 600 km of networks is in the southern part of the country
connecting the Eastern Coast. The LPG transmission system has a capacity to transport
3.8 MMTPA of LPG. LPG transmission through pipelines was 3337 TMT in the year
2010–11.

GAIL has a share of about 10% of the Indian LPG market in LPG production and 7% in
LPG sales.

40
2.13 PETROCHEMICALS
GAIL diversified from gas marketing and transmission into the polymer business by
setting up North India's first gas based Petrochemicals complex. Even without having
any prior experience in petrochemicals, GAIL commissioned the plant successfully in
year 1999 by rigorous teamwork and project management capabilities. The
petrochemical business is one of the core focus area of GAIL.

GAIL has set up a world-scale gas cracker plant, petrochemical complex at Pata in
Auraiya district of Uttar Pradesh with an investment of ₹25 billion (US$370 million).
The plant has a design capacity to produce 100 TPA of ethylene (expandable to 5 TPA).
Downstream units include HDPE production unit of 1-TPA capacity and
an LLDPE/HDPE swing plant of 16-TPA capacity. This complex recovers ethane-
propane (C2/C3) from natural gas from Vijaipur through the HVJ pipeline for producing
polymers. Conversion of ethane-propane (otherwise used as fuel) from natural gas will
give tremendous value addition.

GAIL Pata is the only HDPE/LLDPE plant operating in Northern India and has a
dominant market share in North India. The primary thrust markets for the polymers had
been Western India, but, with the entry of GAIL in the HDPE & LLDPE market
Verticals, today North India has also witnessed a rapid and significant growth in the
polymer downstream processing Verticals. In a successful span of about decades of
establishing and marketing its grades under the brand names G-Lex and G-Lene, GAIL
has alongside augmented its name plate capacity of HDPE and LLDPE to 410,000
MTPA by adding another dedicated HDPE downstream polymerisation unit of 100,000
MTPA.

The current per capita consumption of plastics in India is about 1.8 kg compared with
the world average of 17 kg. Demand and supply projections indicate a progressively
increasing domestic offtake. Being the only plant outside western India, it offers easy
access to polymer consumers in Northern India and parts of Central India.

GAIL has set up a joint venture, Brahmaputra Cracker and Polymer Limited BCPL, to
construct a Greenfield petrochemical plant in Assam. GAIL also has equity stake in
OPAL petrochemical plant led by ONGC. GAIL is a co-promoter with 17% equity stake

41
 in ONGC Petro-additions Limited (OPaL) which is implementing a green field
petrochemical complex of 1.1 MMTPA ethylene capacity at Dahej in the state of
Gujarat.

Further, GAIL is working on augmentation of the installed capacity further by putting

up new plants of HDPE/LLDPE by 500 KTA at Pata, which is targeted to be operational
by FY 2013–14.

2.14 CITY GAS DISTRIBUTION

GAIL is the pioneer of city gas distribution in India. GAIL took many initiatives to
introduce PNG for households and CNG for the transport sector to address the rising
pollution levels. Pilot projects were launched in early 1990s in two metros Delhi and
Mumbai through joint venture companies Indraprastha Gas Limited (IGL) and
Mahanagar Gas Limited (MGL) leading to the start of commercial operation of city gas
projects. The results of these ventures are quite visible through the improvement in air
quality in these cities.

Based on the success of IGL and MGL, GAIL has further set up six more JVCs
vizBhagyanagar Gas Limited, Andhra Pradesh; Avantika Gas Limited in Madhya
Pradesh; Central U P Gas Limited & Green Gas Limited in Uttar Pradesh; Maharashtra
Natural Gas Limited in Pune Maharashtra and Tripura Natural Gas Company Limited in
Tripura for CGD projects in various cities.

However, Ministry of Petroleum & Natural Gas established the Petroleum and Natural
Gas Regulatory Board (PNGRB) with effect from 01.10.2007, under the Petroleum and
Natural Gas Regulatory Board Act 2006, to regulate the refining, processing, storage,
transportation, distribution, marketing and sale of petroleum, petroleum products and
natural gas excluding production of crude oil and natural gas. The Petroleum & Natural
Gas Regulatory Board Act-2006 provides the legal framework for the development of
the natural gas pipelines and city or local gas distribution networks. With the arrival of
the PNGRB the implementation of PNG in various cities is being taken up in a phased
manner as and when the bids are called for by the regulator.

2.15 EXPLORATION AND PRODUCTION.

42
 GAIL is participating in 31 exploration blocks, in Basins such as Mahanadi, Mumbai,
Cambay, Assam-Arakan, Tripura Fold Belt, Gujarat Kutch, Krishna Godavari, Cauvery
and Cauvery Palar. GAIL has partnership in these blocks with various companies such
as ONGC, OIL, GSPC, Hardy Exploration & Production, Petrogas, JOGPL, Eni and
Daewoo as Operators. Out of these 31 E&P blocks, 2 blocks are overseas (A-1 and A-3
blocks in Myanmar).

The blocks are in various stages of exploration, appraisal and development.

Hydrocarbon discoveries are in place in 7 E&P blocks in blocks where GAIL is
participating. The blocks with hydrocarbon discovery are: MN-OSN-2000/2, CB-ONN-
2000/1, Block A-1 and A-3 Myanmar, CY-OS/2, AA-ONN-2002/1, CB-ONN-2003/2.

Production of crude oil is in progress from Cambay Onland block (CB-ONN-2000/1) @

1250 barrels per day. Development activities are in progress in 2 blocks in Burma (A-1
and A-3) and production of gas is expected from May 2013. Declaration of
Commerciality has been approved by the Government in Mahanadi Offshore (MN-
OSN-2000/2) block. In other blocks where hydrocarbon discoveries have been made,
appraisal is in progress.

GAIL is an active member of multi-organization team (MOT) set-up for assessment of

shale gas potential in Indian basins. The other representative in MOT are from DGH
(Directorate General of Hydrocarbons), ONGC and Oil India Limited (OIL).

GAIL is also a member of National Gas Hydrate Programme being coordinated by

DGH and is actively involved in activities related to gas hydrate exploration.

2.16 GAILTEL
GAILTEL, the Telecom and Telemetry services arm of GAIL (India) Limited, is
providing communication services for its business critical pipeline Supervisory Control
and Data Acquisition (SCADA), Enterprise Resource Planning (ERP) for automation of
organisation-wide business processes/functions and inter/intra office communications
apart from commercially leasing telecom services to telecom operators across India
since 2001.

43
 GAILTEL has a reach of around 13,000 km of OFC network along GAIL's reliable
cross country pipelines (5,681 km) and state/national highway routes (7,346 km),
connecting 150 towns/cities spanning across Rajasthan, Gujarat, Madhya Pradesh, Uttar
Pradesh, Maharashtra, Andhra Pradesh, Karnataka, Tamil Nadu, Kerala and NCR.

GAILTEL services include long term lease of Dark Fibre and Duct under IRU, Tower
space and collocation facilities and point-to-point leased line bandwidth services. With
SDH & DWDM as the core layer, GAILTEL network is built largely along the highly
secured GAIL's cross country pipeline corridor and ensure highly reliable and error free
service to its internal and external customers. The network is managed centrally on
24X7 basis from a state-of-art Network Management Centre at Noida.

GAILTEL today serves most of the Telecom operators of the country, which include
Vodafone, TCL (VSNL), Bharti Airtel, Idea Cellular, Tulip Telecom, Tata Tele
services, PGCIL, and DEN Network.

2.17 POWER
Ratnagiri Gas and Power Pvt. Ltd. (RGPPL) are a joint venture company between GAIL
(India) Ltd, NTPC Limited, Indian Financial Institutions (IFIs) and MSEB Holding
Company Limited. The promoters have incorporated and registered the company as a
private limited company on 8 July 2005. The authorised share capital of the company is
20 billion and the shareholdings of GAIL, NTPC and IFI's are 28 1/3% each and MSEB
15%. The project is located at Ratnagiri district of Maharashtra state about 340 km
south of Mumbai. The project has power generation capacity of 2150 MW along with
an integrated 5 MMTPA LNG terminal. Primary fuel for the power plant is natural gas.

2.18 ALLIANCES

GAIL has formed subsidiaries and joint venture companies for city gas distribution and
petrochemicals. GAIL is one of the pioneers to introduce city gas projects in India for
gas supplies to households, commercial users and for the transport sector by forming
subsidiaries/ joint venture companies.

44
2.19 Subsidiaries
 GAIL Gas Limited
GAIL Gas is a wholly owned subsidiary of GAIL. GAIL Gas has been selected for
implementation of City Gas Distribution (CGD) projects in four cities, namely, Kota,
Dewas, Sonepat and Meerut in the first round of bidding by the Petroleum & Natural
Gas Regulatory Board (PNGRB). GAIL Gas supply CNG & PNG (industrial,
commercial and household customers) in the city of Dewas, Meerut, Sonepat& Kota
and Taj Trapezium Zone. GAIL GAS is providing natural gas to approximately 350
industrial consumers in TTZ area (Agra and Firozabad) in Uttar Pradesh India. GAIL
GAS has also started the CGD work in Bengaluru Karnataka recently.

 Brahmaputra Cracker and Polymer Limited (BCPL)

GAIL has 70% equity share in BCPL, a subsidiary, with Oil India Limited (OIL),
Numaligarh Refinery Limited (NRL), Govt. of Assam, each having 10% equity share.
Feedstock Supply Agreements have been signed between BCPL and all the three
suppliers, viz., Oil and Natural Gas Corporation Limited, Oil India Limited and
Numaligarh Refinery Limited. Technology licence agreements have been signed for
cracker, polyethylene and polypropylene units.

BCPL is setting up a 280,000 TPA polymer plant at an investment of ₹54.6 billion (US$
810 million). Financial commitment to the extent of ₹30 billion (US$450 million) has
been made and project execution is in progress.

 GAIL Global (Singapore) Pvt Limited

GAIL has a wholly owned subsidiary, namely, GAIL Global (Singapore) Pvt Ltd., to
manage investments abroad. GAIL is looking for further business opportunities through
this subsidiary company. The official website for GAIL Global Singapore Pvt Ltd.

45
2.20 Joint Ventures
 Avantika Gas Limited (AGL)
AGL is in operation in Indore and Ujjain and is supplying CNG to the transport sector
in these cities. AGL is supplying CNG to almost 9,000 vehicles in both the cities. AGL
has plans to set up five and two CNG stations in Gwalior and Ujjain respectively, and
domestic supplies to households. Six daughter stations are mechanically ready for CNG
dispensing, awaiting for CCOE final approval. MoPNG has authorized AGL for CGD in
Indore, Gwalior and Ujjain. GAIL has 22.5% stake in the Company along with HPCL
as an equal partner.

 Bhagyanagar Gas Limited (BGL)

BGL is operating six CNG stations in Vijayawada and 4 CNG stations in Hyderabad
and one CNG station in Rajahmundry. BGL is supplying CNG in these three cities to
almost 6,000 vehicles. BGL is also operating two Auto LPG stations in Hyderabad and
one Auto LPG station in Tirupati. BGL has received authorization from MoPNG for
City Gas Distribution (CGD) in Hyderabad and Vijayawada. GAIL has a 22.5% stake in
the company along with HPCL as an equal partner.

 Central U.P. Gas Limited (CUGL)

CUGL is operating 15 CNG stations in Kanpur, Unnao and two CNG stations in
Bareily. CUGL is supplying CNG to almost 45,000 vehicles in the two cities. CUGL
commenced its domestic supply of PNG with connexions to 15000 households in
Kanpur and Bareilly. CUGL has received authorisation from MoPNG for CGD in
Kanpur, Unnao, Bareilly & Jhansi. GAIL has 25% stake in the Company along with
BPCL as an equal partner. CUGL has connected 200 commercial and industrial units in
both the cities.

 Green Gas Limited (GGL)

GGL is operating six CNG stations in Lucknow and three CNG stations in Agra. GGL
is supplying CNG in the two cities. GGL has tied up for commencement of domestic
supply of PNG with connexions to households, commercial and industrial

46
 establishments. MoPNG has authorised GGL for CGD in Lucknow and Agra. GAIL has
a 22.5% stake in the company along with IOCL as an equal partner.

 Indraprastha Gas Limited (IGL)

IGL is the largest CGD entity in terms of CNG sales and the number of vehicles
supplied by CNG in India. IGL has received authorisation from MoPNG for CGD in
Delhi and its suburbs viz. NOIDA (GautamBudh Nagar), Greater NOIDA, Gurgaon,
Faridabad and Ghaziabad. IGL is supplying piped gas to around 200,000 domestic, 340
commercial, 20 small industrial consumers and CNG to over 300,000 vehicles through
around 200 CNG stations in NCR. GAIL has a 22.5% stake in the company along with
BPCL as an equal partner.

 Mahanagar Gas Limited (MGL)

MGL is a joint venture of GAIL and British Gas. MGL has set up 140 CNG stations
catering to over 200,000 vehicles spread over Mumbai, Thane, Mira-Bhayandar and
Navi-Mumbai areas besides supplying PNG to over 450,000 domestic customers, more
than 1,000 small industrial and commercial consumers. It has received authorisation
from MoPNG for CGD in Mumbai, District Thane including Navi Mumbai and Mira
Bhayander. GAIL has a 49.75% stake in the company along with British Gas as an
equal partner.

 Maharashtra Natural Gas Limited (MNGL)

MNGL is a joint venture of GAIL and Bharat Petroleum Corporation Limited (BPCL)
for implementation of City Gas Projects in and around Pune city. MNGL has received
authorisation from MoPNG for CGD in Pune including Pimpri, Chinchwad, Talegaon,
Hinjewadi and Chakan areas. It has started 10 stations supplying CNG to nearly 5,000
vehicles. GAIL has a 22.5% stake in the company along with BPCL as an equal partner.

 ONGC Petro-additions Limited (OPaL)

GAIL is in the process of acquiring equity stake in ONGC Petro- additions Limited
(OPaL), which is a joint venture of GAIL with Oil and Natural Gas Corporation Ltd.
and Gujarat State Petroleum Corporation Ltd., for setting up Petrochemical Project at

47
 Dahej in Gujarat. OPaL is setting up a green field petrochemical complex of 1.1
MMTPA ethylene capacities (dual feed cracker) in Dahej, Gujarat.

Four main players dominate the petrochemical sector, namely, Reliance Industries Ltd.
(RIL), Indian oil (IOCL), Gas Authority of India Ltd. (GAIL), and Haldia
Petrochemicals Ltd. A New Chapter to this Industry has been added by the evolution of
ONGC Petro additions Ltd. (OPaL) on 15 November 2006 which is a joint venture
Company of Oil and Natural Gas Corporation Limited (ONGC), Gujarat State
Petroleum Corporation Ltd. (GSPCL) and GAIL India Ltd. is a grass root Mega
Petrochemical complex of Global scale based on dual feed i.e., C2/C3/C4 & Naphtha at
Dahej special Economic Zone (SEZ), Gujarat. The complex consists of Dual Feed
Ethylene cracker (with C2/ C3/ C4 and Naphtha feed ) of 1100KTPA capacity to
produce Ethylene and Propylene as Petrochemical Feedstock to downstream units of
Polyethylene (LLDPE, HDPE) and Polypropylene(PP) and associated unit i.e.,
PyGasHydrotreating, Benzene and Butadiene extraction plants to produce other
products (Pygas, 1,3- Butadiene and Benzene). Utility and offsite facilities to cater to
complex requirement is built within the Complex which includes ECTS and CPP. The
grass root complex is located at a distance of about 10 km to the ONGC's C2+
Extraction Plant within Special Economic zone (SEZ) at Dahej, Gulf of Khambhat.

Feed system: C2, C3 & C4 feed is sourced from existing C2+ recovery plant of ONGC
in Dahej (at a distance of 10 km) through pipeline. Mixed Naphtha (LAN & ARN) in
definite proportionate from Hazira is sourced to Petrochemical complex through a
separate pipeline.

Saleable products: The products shall be dispatched through various modes, like
bagging, truck, rail, tanker loading and through pipelines.

 Petronet LNG Limited (PLL)

PLL has been formed for setting up of LNG import and regasification facilities. PLL
has a long term LNG supply contract with RasGas, Qatar, for import of 7.5 MMTPA of
LNG. PLL Dahej terminal in Gujarat has been expanded to 10 MMTPA capacity. PLL
has successfully implemented a pilot project for supplying LNG through cryogenic road

48
 tankers. PLL is also coming up with a LNG terminal at Kochi, Kerala, with an initial
capacity of 2.5 MMTPA, expandable up to 5 MMTPA and it is scheduled to be
operational by end of 2011. GAIL has a 12.5% equity stake in PLL, along with BPCL,
ONGC and IOCL as equal partners.

 Ratnagiri Gas and Power Pvt. Ltd. (RGPPL)

RGPPL is a joint venture company between GAIL, NTPC, Financial Institutions and
MSEB. The capacity of the Ratnagiri Gas & Power Station is 2,150 MW, which is the
largest gas based power generation facility in the country and is producing 1,850 MW
of power. RGPPL is in the process of commissioning an LNG import terminal of 5
MMTPA capacities. GAIL has 32.88% stake in the company along with NTPC as an
equal partner.

 Tripura Natural Gas Company Limited (TNGCL)

TNGCL is supplying gas to around 7,500 domestic, 170 commercial and industrial
consumers and has set up one CNG station in Agartala, which is catering to more than
1,400 vehicles. TNGCL has received authorisation from MoPNG for CGD in Agartala.
GAIL has 29% stake in the company.

 GAIL China Gas Global Energy Holdings Limited

The joint venture company has been formed with an objective to pursue gas sector
opportunities, mainly in China. GAIL has 50% equity interest in the company along
with China Gas as equal partner. The joint venture company is in the process of
identifying projects in gas and other related areas in China.

2.21 Global presence

As a strategy of going global and further expanding global footprint, GAIL has
formed a wholly owned subsidiary company, GAIL Global (Singapore) Pte Ltd. in
Singapore for pursuing overseas business opportunities including LNG & petrochemical
trading. GAIL has also established a wholly owned subsidiary, GAIL Global (USA) Inc.
in Texas, USA. The US subsidiary has acquired 20% working interest in an
unincorporated joint venture with Carrizo Oil & Gas Inc in the Eagle Ford shale acreage

49
 in the state of Texas. In addition to having two wholly owned subsidiaries in Singapore
and the US, GAIL has a representative office in Cairo, Egypt to pursue business
opportunities in Africa and Middle East.

GAIL is also an equity partner in two retail gas companies in Egypt, namely Fayum Gas
Company (FGC) and National Gas Company (Natgas). Besides, GAIL is an equity
partner in a retail gas company involved in city gas and CNG business in China – China
Gas Holdings Limited (China Gas). Further, GAIL and China Gas have formed an
equally owned joint venture company – GAIL China Gas Global Energy Holdings
Limited for pursuing gas sector opportunities primarily in China.

GAIL is a part of consortium in two offshore E&P blocks in Myanmar and also holds
participating interest in the joint venture company – South East Asia Gas Pipeline
Company Limited incorporated for transportation of gas to be produced from two
blocks in Burma (Myanmar) to China.

2.22 CORPORATE SOCIAL RESPONSIBILITIES

In terms of the guidelines issued by the Department of Public Enterprises, GAIL has
allocated an annual budget of 2% of the previous year's profit after tax for CSR
activities, which is effectively used for carefully chosen programmes. Socially useful
programmes have been undertaken in GAIL since its inception in and around the areas
adjoining its major work centres under the SCP/TSP Plan. But over the years, the scope
of the CSR activities, the nature of programmes undertaken and the systems adopted for
implementation of these programmes have been streamlined and strengthened and the
work under SCP/TSP came under the wider scope of CSR. Today, CSR & sustainability
development is accorded high priority in the organizational ethos and attempted to be
interwoven in all the business activities and the projects that are being undertaken by the
company.

During the year 2010–11, the company has taken up programmes of a value of
approximately ₹575 million (US$8.5 million) for implementation under the seven thrust
areas, which include:

50
 Community Development, Infrastructure, Healthcare/Medical, Skill Development/Empo
werment, Educational Aids, Environment Protection, Drinking Water/Sanitation.

For the year 2010–11 under the thrust area Community Development, programmes
worth ₹157 million (US$2.3 million) are endorsed and the implementation of these
projects is in progression.

GAIL (India) Ltd. extended its support for the reconstruction and renovation of
numerous public utilities/buildings which improved living standards not only for a
person or family but for whole of the villages where this project was implemented. For
the sustainable development of the whole community GAIL is also supporting
integrated livelihood programmes in villages especially for small and marginal farmers.
This would be considered as a drop in the vast ocean but GAIL along with other Oil
PSUs is contributing towards provision of LPG connections to BPL families under
Rajiv Gandhi Garmin LPG VitrakYojana. This collaborative combined effort of the Oil
PSUs would be able to generate a huge wave in the ocean in UP region. GAIL believes
that for providing better tomorrow for the community where it has its working the focus
should be on the future of the community i.e. children and students. So in view of this
belief GAIL is providing vehicles for distribution of a mid-day meal for underprivileged
children of government schools so as to encourage the young girls and boys to educate
themselves for their better and secured lives. GAIL in the minuscule of its efforts have
tried to touch every aspect of life by providing Night shelters and blankets to villagers,
adoption of destitute tribal children of the orphanage in the tribal area, generating AIDS
awareness and a behaviour change communication programme for truckers of national
highways and providing school bus for physically challenged students. In just two years,
more than 314,000 families.

2.23 MILESTONES
1984 GAIL (India) Ltd was formed

1987 HVJ (Hazira – Vijaipur – Jagdishpur) Natural Gas pipeline

commissioned

1989 First Year of profit registered

51
1990 LPG Plant Phase – I at Vijaipur commissioned

1992 Gas Marketing functions transferred to GAIL

1993 Maiden dividend of Rs. 20 Crores paid to its shareholders

1994 First JV Mahanagar Gas Limited formed with British Gas

incorporated to implement Mumbai City Gas Distribution project

1995 Propane recovery plants at Vijaipur commissioned

1996 GAIL listed in NSE, BSE and DSE

1997 Government of India granted Navratna status to GAIL

1998 Indraprastha Gas Limited (IGL) incorporated for supply of gas to

household sector, transport sector & commercial consumers in
Delhi

1999 LPG plants at Usar and Lakwa commissioned

1999 Uttar Pradesh Petrochemical Complex (UPPC) at Pata

commissioned with a design capacity of 3 lacs TPA of Ethylene
to produce 2. 60 lacs TPA of HDPE & LLDPE.

2000 LPG plant at Pata with a design capacity of 2.58 lacs TPA of LPG
commissioned

2000 Participated in under NELP- I and 2 blocks awarded

2001 Jamnagar-Loni LPG Pipeline Project, world’s longest and India's

first Cross-Country LPG 1269 km long pipeline commissioned

2001 LPG plant at Gandhar commissioned

2002 GAIL picks up 12% equity stake in GSEGs 156MW power project
in Gujarat

52
2003 GAIL has an initial success in the form of significant gas find in
the block A-1 in Myanmar and discovery of Oil and Gas in the
Cambay Block.

2003 Bhagyanagar Gas Limited, a joint venture of GAIL and HPCL,

incorporated in August 2003, in the field of distribution and
marketing of Auto LPG, CNG for vehicles and retailing of natural
gas in cities of Andhra Pradesh.

2003 Vizag- Secunderabad LPG pipeline, the 580 km pipeline with a

maximum throughput of 1.16 MMPTPA completed

2003 GAIL successfully secures participation in 2 retail gas companies

in Egypt, Fayum Gas Company and Shell CNG.

2004 Dahej - Vijaipur natural gas pipeline commissioned

2004 A wholly-owned subsidiary company GAIL Global (Singapore)

Pte Ltd formed in Singapore

2004 Platts declares GAIL as the first among Global Gas Utilities based
on Return on Invested Capital (ROIC) in its worldwide survey of
Top 250 Energy Companies in 2004.

2004 Tripura Natural Gas Co. Ltd., a Joint Venture for city gas project
in Tripura and UP Central Gas Ltd., a Joint Venture for city gas
project with BPCL in Kanpur, incorporated

2004 GAIL acquired 15% equity stake in NatGas, Egypt

2005 Inauguration of the National Gas Management Centre (NGMC) of

GAIL at NOIDA

2006 GAIL brings India’s first spot LNG cargo at Dahej

2006 GAIL consortium wins 3 CBM blocks in III round of bidding

53
2007 MoP&NG authorization for 5 new major pipelines received

2007 Brahmaputra Cracker and Polymer Limited, a Joint Venture

Company led by GAIL, formed for implementing Assam Gas
Cracker Project

2007 GAIL forms a Joint Venture Company (JVC) with China Gas
Global Energy Holdings Limited.

2007 Expansion of Petrochemical Plant at Pata for increasing capacity

from 310,000 TPA LLDPE/HDPE to 410,000 TPA completed

2007 188 Km Dahej – Panvel - Dabhol trunk pipeline having a capacity

of 8.4 MMSCMD commissioned

2007 Received authorization from MoP&NG for five new pipeline

projects and two augmentation lines

2008 Dahej - Panvel- Dabhol pipeline commissioned

2008 GAIL Gas Limited incorporated for CGD

2008 GAIL Gas limited wins the rights for rolling out city gas
distribution projects in Meerut, Sonepat, Dewas and Kota.

2008 A special commemorative postage stamp released on the occasion

of GAIL’s silver jubilee

2008 A wholly owned subsidiary, GAIL Gas Limited, incorporated for

City Gas Distribution business

2009 GAIL gets SCOPE Meritorious Award for Corporate Governance

for the year 2007-08.

2010 GAIL ranked No.1 Company among gas utilities in Asia in the
Platts Global Ranking.

54
2010 GAIL conferred “MoU Excellence Award” for the year 2008-09
by Prime Minister of India

2010 GAIL ranked No.1 Company among gas utilities in Asia in the
Platts Global Ranking

2010 Petroleum Federation of India (PETROFED) Awards 2010 for Oil

& gas Marketing – Company of the year

2010 Entered in Wind Energy generation by commissioning Wind

Power Project of 4.5 MW in Gujarat

2010 Commissioning of Vijaipur- Dadri Pipeline (498 km) Sultanpur –

Neemrana Pipeline (175 km) and Focus Energy Pipeline (88 km)

2011 AIMA Managing India Awards 2011 for Outstanding PSU of the
year

2011 GAIL’s growth strategy for the period 2011-20 approved by the
Board

2011 GAIL started its journey towards “Sustainability Reporting”

2011 Acquired 20% stake in Houston-based Carrizo Oil and Gas’s Eagle
Ford shale acreage, first instance of a PSU acquiring shale assets in USA

2011 A wholly-owned subsidiary company GAIL Global (USA) Inc.

formed in Houston, USA

2011 Office of GAIL Global (Singapore) Pte Ltd opened in Singapore

2011 GAIL became first Asian company to sign Henry Hub linked 20
year deal with Cheniere Energy for importing 3.5 MMTPA LNG
from US

2011 GAIL won rights to lay a 1550-km, $1bn natural gas pipeline from
Surat in Gujarat to Paradip in Orissa, connecting west to east coast

55
2012 GAIL conferred MoU Excellence Award for the year 2009-10 for
Best Performing CPSE in the Petroleum Sector consecutively for
second year

2012 GAIL has been ranked World’s No. 1 in Downstream Operations

in Platts Global Energy Awards

2012 GAIL signed a 20-year agreement with Sabine Pass Liquefaction

LLC, a unit of Cheniere Energy Partners, for supply of 3.5
MMPTA/year of LNG

2012 GAIL published its first sustainability report

2012 Commissioned 100 MW Wind Energy Generation project in

various state of India

2012 GAIL become only company from Oil and Gas sector to be
included in BSE Greenex, India's first energy efficient index

2012 2200 km Dahej-Vijaipur-Dadri-Bawana-Nangal-Bhatinda cross-

country pipeline running through North West corridor of India
dedicated to the nation

2012 GSPA signed between GAIL and TurkrnenGaz for Turkmenistan-

Afghanistan-Pakistan-India (TAPI) Gas Pipeline Project

2013 Maharatna Status accorded to GAIL by Government of India

2013 Entered in Solar Power generation by commissioning 5 MW Solar

Power Plant under Jawaharlal Nehru National Solar Mission

2013 Successful commissioning of Dabhol LNG Terminal at Ratnagiri,

Maharashtra

2013 Commissioning of Dabhol – Bengaluru pipeline

2013 Capacity Booking in Cove Point LNG Terminal, United States

56
 2013 Liquefaction Capacity booking in Cove Point LNG Terminal in
USA

2014 Gas supply secured in USA for export of 2.3 MMTPA LNG to
India from Dominion Cove Point LNG Liquefaction Terminal

2014 TAPI pipeline consortium called TAPI Pipeline Company Limited

(TPCL) incorporated in ‘Isle of Man’, a British Crown dependency
located in the Irish Sea.

2014 MoU with RCF, CIL & FCIL executed for implementing Coal
Gasification project at Talcher comprising of JV-I (coal
gasification) and JV-II (Urea & Ammonia, Ammonium Nitrate,
captive power plant and integrated utility).

2014 Entered into Elastomer Business

2015 Construction work of first phase of 2,050 km Jagdishpur – Haldia

Natural Gas pipeline inaugurated by Hon’ble Prime Minister Shri
Narendra Modi

2015 Indian Oil and GAIL (India) Ltd, two Maharatna Public Sector
Companies of India, have signed MoU with Dhamra LNG
Terminal (DLTPL)

2016 GAIL (India) Ltd Gas Sale and Purchase Agreement (GSPA) with
Petronet LNG Limited. GAIL surges over 5 pct as PNGRB revises
KG Basin gas tariff

2.24 Awards

 Achievement of 100% Safety Index @ GPU–Gandhar (2010–11) was duly recognized by

BSC, UK. GPU–Gandhar was conferred 'International Safety Award' for 4th time from

57
 GAIL (India) has been ranked no.1 company among gas utilities in Asia in the Platts
Global Ranking of Energy Companies.
 GAIL (India) was conferred 'MOU EXCELLENCE AWARD' by the Department Of
Public Enterprises for the year 2008–09 in the petroleum sector.
 GAIL (India) was conferred a Certificate of Recognition for Excellence in Corporate
Governance in the 10th ICSI National Award for Excellence in Corporate Governance
2010 as one of the Top Companies adopting Excellent Practices in Corporate
Governance.
 National Award for Excellence in Cost Management 2009 GAIL won the Third Award in
the public sector Manufacturing (Large) category
 SCOPE Meritorious Award to GAIL (India) Limited for Corporate Governance for the
year 2007–08.
 India´s Most Customer Responsive Company in Manufacturing sector
 Highest Wealth Creator in Manufacturing sector
 Rajiv Gandhi National Quality Award as the best performer among the Large Scale
Manufacturing Industry
 The PetroFed oil & Gas pipeline Transportation – Company of the Year for 2007–2008
Award honours the leading performance in transporting crude oil, petroleum products
and natural gas through pipelines in India during the year. This award honours GAIL
(India) Limited for their leading performance towards growth of infrastructure, optimal
utilisation during hydrocarbons transportation in India in 2007–08 while meeting the
norms of health, safety and environment protection.

58
 3. FINANCIAL STATEMENT ANALYSIS

3.1 INTRODUCTION
Financial statements are prepared primarily for decision making. They play a
dominant role in setting the frame work of managerial decisions.

Financial analysis is the process of identifying the financial strength and weakness of
the firm by properly establishing between the items of the balance sheet and statement
of profit and loss. There are various methods or techniques used in analysis financial
statements such as comparative statements, trend analysis, common size statements,
schedule of changes in working capital, funds flow and cash flow analysis – Cost
Volume Profit Analysis and Ratio Analysis.

3.2 MEANING & CONCEPT OF FINANCIAL STATEMENT

ANALYSIS
Financial statement analysis is largely a study of relationship among the various
financial factors in a business as disclosed by a single set of statements and a study of
the trend of these facets as shown in a series of statement. The purpose of financial
analysis is to diagnose the information contained in financial statements so as to judge
the profitability and financial soundness of the firm.

 The term financial statement analysis includes both analysis and interpretation.
 The term analysis is used to mean the simplification of financial data by methodical
classification of the data give in the financial statement

59
3.3 TYPES OF FINANCIAL ANALYSIS
Financial analysis can be classified in to different categories depending up on:

A. On the basis of material used.

B. On the basis of modules used.

60
3.4 ON THE BASIS OF MATERIALS USED:

According to the basis of materials used, financial analysis can be of two types.

3.4.1 External Analysis:

This analysis is done by those who are outsiders for the business. These persons
mainly depend up on the published financial statements. Their analysis serves only a
limited purpose.

3.4.2 Internal Analysis:

This analysis is done by persons who have access to the books of accounts and to
other information related to the business. Such an analysis can be done by executives
and employees of the organization. The analysis is done depending upon the objective
to be achieved through this analysis.

3.5 ON THE BASIS OF MODULES USED:

According to the basis of modules used, financial analysis can be of two types:

1. Horizontal analysis
2. Vertical analysis.
3.5.1 Horizontal analysis:
In this type of analysis, financial statements for a number of years are reviewed
and analysed. The current year figures are compared with the standard or base year.
The analysis statement usually contains figures for two or more years and the changes
are shown regarding each item from the base year usually in the form of percentage.
Since this type of analysis is based on the data from year to year rather than on date, it is
also termed as “Dynamic Analysis”.

3.5.2 Vertical analysis:

In case of this type of analysis a study is made of the quantitative relationship of
various items in the financial statement on a particular date. Since this analysis depends
on the data for one period, this is not very conducive to a proper analysis of the

61
 company’s financial position. It is also called ‘static analysis as it is frequently used for
referring to ratio developed on one date or for one accounting period.

3.6 PROCEDURE OF FINANCIAL STATEMENT ANALYSIS

There are three steps involved in the analysis of financial statements.

1. Selection.
2. Classification
3. Interpretation

1. Selection:-Involves selection of information relevant to the purpose of analysis of

financial statements.
2. Classification:-The 2nd step involved is the methodical classification of the data and
the third step includes drawing of interpretation and conclusion.
3. Interpretation:-The final step involves the interpretation of the data and it gives the
final conclusion for the respective statements in a given period when compared to
past or previous year’s data.

3.7 METHODS OR DEVICES OR TECHNIQUES OF FINANCIAL

ANALYSIS
The analysis and interpretation of financial statements is used to determine the
financial position and result of operations.

1. Comparative Financial statements

2. Common size financial statements
3. Ratio Analysis
4. Cash Flow analysis
5. Trend analysis / Trend Percentages
6. Cost-Volume-Profit analysis

62
 3.7.1 COMPARATIVE FINANCIAL STATEMENTS:
The statements which have been designed in a way so as to provide time
perspective to the consideration of various elements of financial position embodied in
such statements with figures for two or more period side by side to facilitate
comparison. Both the income statement and balance sheet can be prepared in the form
of comparative financial statements.

The comparative financial statements contain the following items.

i. Absolute figures as given in the final accounts.

ii. Absolute figures expressed in terms of percentages.
iii. Increase or decrease in absolute figures in terms of money value.
iv. Increase or decrease in terms of percentages.
v. Comparison expressed in ratios.
vi. Percentages of totals.
Comparative Financial Statements includes the following two statements i.e.

 Comparative Balance sheet, and

 Comparative Income statements.
3.7.1.1 COMPARATIVE BALANCE SHEET:

The balance sheet prepared on a particular date reveals the financial position of the
concern on the date. To study the trends of business over a period of time; comparative
balance sheet reveals the cause for changes in the financial position on account of
various transactions. The comparative study throws light on financial policies adopted
by management.

The comparative balance sheet consists of two columns for the original data. A
third column used to show increase or decrease in various items. A fourth column
containing the percentage of share of each variable out of the total value.

63
 Guidelines for interpretation of balance sheet:

The short term financial position can be studied by comparing the working capital
of both years.

1. To study the liquidity position, changes in liquid assets must be ascertained and if there
is any increase in liquid assets, we must understand that there is an improvement in the
liquidity position of the concern and vice versa.
2. A high increase in sundry debtors and bills receivable means an increase in risk in
collecting the amount of dues.
3. A high increase in closing stock may mean decrease in the demand.
4. Long term financial position of the business concern can be analysed by studying the
changes in fixed assets, long term liabilities and capital.
5. Fixed assets must be compared with long term loans and capital. If the increase in fixed
assets is more than the increase in long term loans and capital, it means fixed assets are
financed from the working capital which is not good in the long term.

3.7.1.2 COMPARATIVE INCOME STATEMENTS:

The income statement (Profit &Loss A/c) gives the results of the operations during
a definite period. It reveals the profit carried or loss incurred by the concern. The
comparative study of income statement for more than 1 year may enable us to know the
program of the concern. First two columns give figures of various items for two years.
The third and fourth column shows increase or decrease in absolute figures and in
percentage respectively.

1. In first step, find out the changes in absolute figures i.e., increase or decrease should be
calculated.
2. Share of each variable out of the total income or expenditure is calculated.

64
 3.7.2 COMMON SIZE FINANCIAL STATEMENTS:
The common size statements i.e. balance sheet and income statement are shown
in analytical percentages. The figures are shown as percentages of total assets, total
liabilities and sales. The total assets are taken as 100 and different assets are expressed
as percentage of the total. Similarly various liabilities are shown as a percentage of total
liabilities.

These statements are also known as component parentage or 100% statements

because every individual item is stated as a percentage of the total 100.The short-
comings in comparative statements and trend percentages where changes in item could
not be compared with the total have been covered up. The common size statements may
be prepared in the following way.

i. The totals of assets or liabilities are taken as 100.

ii. The individual assets are expressed as a percentage of total assets i.e., 100 and
individual liabilities are also expressed as a percentage of total liabilities i.e., 100.
Common Size Financial Statements also includes the following two statements i.e.

 Common Size Balance sheet, and

 Common Size Income statements.
3.7.2.1 COMMON SIZE BALANCE SHEET:

Statement in which balance sheet items are expressed as the ratio of each asset to
total assets and the ratio of each liability is expressed as a ratio of total liabilities is
called common size balance sheet. The common size balance sheet is a horizontal
analysis. The comparison of figures in different periods is not useful becomes total
figure may be affected by a number of factors. It is not possible to establish standard
norms for various assets. The trends of year to year may not give proper results.

3.7.2.2 COMMON SIZE INCOME STATEMENT:

The items in income statement can be shown as percentages of sales to show the
relation of each item to sales. A significant relationship can be established between
items of income statement and volume of sales. The increase in sales will certainly
increases selling expression and volume of sales. The increase in sales will certainly

65
increases selling expresses and not administrative or financial expenses. In case the
volume of sale increases to a considerable extent, administrative and financial expenses
may go up. In case the sales are declining, the selling expenses should be reduced at
once. So, a relationship is established between sales and other in income statement and
this relationship is helpful in evaluating operational activities of the enterprises.

3.7.3 RATIO ANALYSIS:

Financial analysis depends to a very large extent on the use of ratios
though there are other equally important tools of such analysis. Thus, a direct
examination of the magnitude of two related items is somewhat enlightening but the
comparison is greatly facilitated by expressing the relationship as a ratio.

Ratio analysis of business enterprises is done to ascertain the capacity of the firm to
meet its future financial obligation or expectations. Present and past data are used for
the purpose and necessary extrapolations are made to provide an indication of future
performance. Alexander Walt, who criticized the bankers for their lopsided decisions
regarding the grant of credit on current ratios alone, made the presentation of an
elaborate system of ratio analysis as early as in the year 1919.

3.7.3.1 RATIO:

Ratio is an expression of the quantitative relationship that exists between

the two numbers. The ratio is defined as “the indicated quotient of two mathematical
expressions” the ratio should be determined between related accounting variables to be
meaningful and effective.

3.7.3.2 RATIO ANALYSIS IMPORTANCE:

As a tool of financial management, ratios are of crucial significance. The
importance of ratio analysis lies in the fact that presents facts on a comparative basis
and enables the drawing inference regarding the performance of a firm. Ratio analysis
is relevant in assessing the performance of a firm in respect to the following aspects.

66
 1. Liquidity position
2. Long-term solvency
3. Operational efficiency
4. Overall profitability
5. Inter-firm comparison, and
3.7.3.3 RATIO ANALYSIS LIMITATIONS:
Ratio Analysis is a widely used tool of financial analysis. Yet, it suffers from
various limitations. The operational implication of this is that while using ratios, the
conclusions should not be taken on their face value. Some of the limitations, which
characterize ratio analysis, are

i. Difficulty in comparison.
ii. Impact of Inflation, and
iii. Conceptual Diversity

3.7.3.4 RATIO ANALYSIS-TYPES:

Several ratios, calculated from the accounting data, can be grouped into various
classes according to financial activity or function to be evaluated. As stated earlier, the
parties interested in financial analysis are short-term and long-term creditors, owners
and management. Short-term creditors` main interest is in the liquidity position or the
short-term solvency of the firm. Long-term creditors`, on the other hand, are more
interested in the long-term solvency and profitability of the firm. Similarly, owners
concentrate on the firm’s profitability and financial condition. Management is
interested in evaluating every aspect of the firm’s performance. They have to protect
the interests of all parties and see that the firm grows profitably. In view of the
requirements of the various users of ratios, we may classify them into the following four
important categories:

 LIQUIDITY RATIOS
 LEVERAGE RATIOS
 ACTIVITY RATIOS
 PROFITABILITY RATIOS
67
A) LIQUIDITY RATIOS:
It is extremely essential for a firm to be able to meet its obligations as they
become due. Liquidity ratios measure the firm’s ability to meet current obligations.

In fact, analysis of liquidity needs the preparation of cash budgets and cash and
Fund Flow statements; but liquidity ratios, by establishing a relationship between cash
and other current assets to current obligations provided a quick measure of liquidity. A
firm should ensure that it does not suffer from lack of liquidity, and also that it does not
have excess liquidity. The failure of a company to meet its obligations due to lack of
sufficient liquidity, will result in a poor creditworthiness, loss of creditors` confidence,
or even in legal tangles resulting in the closure of the company. A very high degree of
liquidity is also bad; idle assets earn nothing. The firm’s funds will be unnecessarily
tied up in current assets. Therefore, it is necessary to strike a proper balance between
high liquidity and lack of liquidity. The most common ratios, which indicate the extent
of liquidity or lack of it, are:

1. CURRENT RATIO:

The current ratio is calculated by dividing current assets by current liabilities.

𝐂𝐔𝐑𝐑𝐄𝐍𝐓 𝐀𝐒𝐒𝐄𝐓𝐒
𝐂𝐔𝐑𝐑𝐄𝐍𝐓 𝐑𝐀𝐓𝐈𝐎 =
𝐂𝐔𝐑𝐑𝐄𝐍𝐓 𝐋𝐈𝐀𝐁𝐈𝐋𝐈𝐓𝐈𝐄𝐒

Current assets include cash and those assets, which can be converted into cash
within a year, such as Marketable Securities, Debtors and Inventories. Prepaid expenses
are also including in current assets as they represent the payments that will not be made
by the firm in future. Current Liabilities include Creditors, Bill payable, Accrued
expenses, Short-term bank loan, and Income Tax Liability and Long-term debt maturing
in the current year.

68
 The current ratio is a measure of the firms` short-term solvency. The higher the
current ratio, the larger is the amount of rupees available per Rupee of current liability,
the more is the firms` ability to meet current obligations and the greater is the safety of
funds of short-term creditors.

2. QUICK RATIO:
The Quick ratio is calculated by dividing quick assets by quick liabilities.

𝐐𝐔𝐈𝐂𝐊 𝐀𝐒𝐒𝐄𝐓𝐒
𝐐𝐔𝐈𝐂𝐊 𝐑𝐀𝐓𝐈𝐎 =
𝐐𝐔𝐈𝐂𝐊 𝐋𝐈𝐀𝐁𝐈𝐋𝐈𝐓𝐈𝐄𝐒

Quick assets or Liquid assets mean those assets which are immediately
convertible into cash without much loss. All current assets except prepaid expenses and
inventories are categorized in liquid assets. Quick liabilities means those liabilities,
which are payable within a short period. Normally, Bank overdraft and Cash credit
facility, if they become permanent mode of financing are in quick liabilities.

As this ratio concentrates on cash, marketable securities and receivables in relation

to current obligation, it provides a more penetrating measure of liquidity than current
ratio.

B) LEVERAGE RATIOS:
The short-term creditors like bankers and suppliers of raw material are more
concerned with the firms` current debt-paying ability. On the other hand, long-term
creditors like debenture holders, financial institutions etc., are more concerned with the
firms` long-term financial strength. In fact, a firm should have strong short-as well as
long-term financial position. To judge the long-term financial position of the firm,
financial leverage, or Capital structure, ratios are calculated. These ratios indicate mix
of funds provided by owners and lenders. As a general rule, there should be an
approximate mix of debt and owner’s equity in financing the firm’s assets.

The manner in which assets are financed has a number of implications. First, between
debt and equity, debt is more risky from the firm’s point of view. The firm has a legal

69
obligation to pay interest on debt holders, irrespective of the profits made or losses
incurred by the firm. If the firm fails to debt holders in time, they can take legal action
against it to get payment and in extreme cases, can force the firm into liquidation.

Secondly, use of debt is advantageous for shareholders in two ways:

a. They can retain control of the firm with a limited stake and
b. Their earnings will be magnified, when the firm earns a rate of return on the total
capital employed higher than the interest rate on the borrowing funds. The process
of magnifying the shareholders return through the use of debt is called “financial
leverage” or “financial gearing” or “trading on equity”.
Leverage ratios may be calculated from the balance sheet to determine the proportion of
debt in total financing. Many variations of these ratios exist; but all these ratios indicate
the same thing-the extent to which the firm has relied on debt in financing assets.
Leverage ratios are also computed from the profit and loss items by determining the
extent to which operating profits are sufficient to cover the fixed charges.

1. DEBT – EQUITY RATIO:

The relationship describing the lender contribution for each rupee of the owner’s
contribution is called DEBT-EQUITY RATIO. Debt Equity ratio is directly computed
by the following formula.

𝐃𝐄𝐁𝐓
𝐃𝐄𝐁𝐓 𝐄𝐐𝐔𝐈𝐓𝐘 𝐑𝐀𝐓𝐈𝐎 =
𝐄𝐐𝐔𝐈𝐓𝐘

2. PROPRIETARY RATIO
This ratio states relationship between share capital and total assets. Proprietor’s
equity represents equity share capital, preference share capital and reserves and surplus.
The latter ratio is also called capital employed to total assets.

𝐄𝐐𝐔𝐈𝐓𝐘 𝐒𝐇𝐀𝐑𝐄 𝐂𝐀𝐏𝐈𝐓𝐀𝐋

𝐏𝐑𝐎𝐏𝐑𝐈𝐄𝐓𝐀𝐑𝐘 𝐑𝐀𝐓𝐈𝐎 =
𝐓𝐎𝐓𝐀𝐋 𝐓𝐀𝐍𝐆𝐈𝐁𝐋𝐄 𝐀𝐒𝐒𝐄𝐓𝐒

70
 3. INTEREST COVERAGE RATIO

This ratio indicates the extent to which earnings can decline without resultant
financial hardship to the firm because of its inability to meet annual interest cost. For
example, coverage of 5 times means that a fall in earnings unto (1/5th) level would be
tolerable, as earnings to service interest on debt capital would be sufficiently available.
This ratio is measured as follows:

𝐄𝐁𝐈𝐓
𝐈𝐍𝐓𝐄𝐑𝐄𝐒𝐓 𝐂𝐎𝐕𝐄𝐑𝐀𝐆𝐄 𝐑𝐀𝐓𝐈𝐎 =
𝐈𝐍𝐓𝐄𝐑𝐄𝐒𝐓 𝐂𝐇𝐀𝐑𝐆𝐄𝐒

C) ACTIVITY RATIOS
Funds creditors and owners are invested in various assets to generate sales and
profits. The better the management of assets, the larger the amount of sales. Activity
ratios are employed to evaluate the efficiency with which the firm managers and utilizes
its assets. These ratios are also called Turnover Ratios because they indicate the speed
with which assets are being converted or turned over into sales. Activity ratios, thus,
involve a relationship between sales and assets. A proper balance between sales and
assets generally reflects that assets are managed well. Several activity ratios can be
calculated to judge the effectiveness of asset utilization.

1. DEBTORS TURNOVER RATIO:

A firm sells goods for cash and credit. Credit is used marketing tool by a number
of companies. When the firm extends credits to its customers, debtors (accounts
receivables) are created in the firms` accounts. The debtors are expected to be
converted into cash over a short period and, therefore, are included in current assets.
The liquidity position of the firm depends on the quality of debtors to a greater extent.
Debtors turnover ratio indicates the velocity of debt collection of a firm. In simple
words, it indicates the number of times average debtors are turned over during a year.

𝐂𝐑𝐄𝐃𝐈𝐓 𝐒𝐀𝐋𝐄𝐒
𝐃𝐄𝐁𝐓𝐎𝐑𝐒 𝐓𝐔𝐑𝐍𝐎𝐕𝐄𝐑 𝐑𝐀𝐓𝐈𝐎 =
𝐀𝐕𝐄𝐑𝐀𝐆𝐄 𝐓𝐑𝐀𝐃𝐄 𝐃𝐄𝐁𝐓𝐎𝐑𝐒

71
2. FIXED ASSETS TURNOVER RATIO:
The fixed assets turnover ratio measures the efficiency with which the firm
is utilizing its investments in fixed assets, such as land, building, plant and machinery,
furniture, etc. It also indicates the adequacy of sales in relation to the investment in
fixed assets. The fixed assets turnover ratio is sales divided by net fixed assets. The
firm assets turnover ratio should be compared with past and future ratios and also with
ratio of similar firms and the industry average. The high fixed assets turnover ratio
indicates efficient utilization of fixed assets in generating sales, while low ratio
indicates inefficient management and utilization of fixed assets.

This ratio indicates the extent to which the debts have been collected in
time. The debt collection period indicates the average debt collection period. This ratio
is a good indicator to the lenders of the firm, because it explains to them whether their
borrower is collecting from its debt in time. An increase in this period indicates
blockage of funds in debtors.

𝐒𝐀𝐋𝐄𝐒
𝐅𝐈𝐗𝐄𝐃 𝐀𝐒𝐒𝐄𝐓𝐒 𝐓𝐔𝐑𝐍𝐎𝐕𝐄𝐑 𝐑𝐀𝐓𝐈𝐎 =
𝐍𝐄𝐓 𝐅𝐈𝐗𝐄𝐃 𝐀𝐒𝐒𝐄𝐓𝐒

3. WORKING CAPITAL TURNOVER RATIO

Working capital turnover ratio indicates the velocity of the utilization of
net working capital. This ratio indicates the number of times the working capital is
turned over in the course of a year. This ratio measures the efficiency with which the
working capital is being used by a firm. A higher ratio indicates efficient utilization of
working capital and low ratio indicates otherwise. But a very high working capital
turnover ratio is not a good situation for any firm and hence care must be taken while
interpreting the ratio. Making of comparative and Trend Analysis can at best use this
ratio for different firms in the same industry and for various periods. This can be
calculated as follows:

72
 𝐒𝐀𝐋𝐄𝐒
𝐖𝐎𝐑𝐊𝐈𝐍𝐆 𝐂𝐀𝐏𝐈𝐓𝐀𝐋 𝐓𝐔𝐑𝐍𝐎𝐕𝐄𝐑 𝐑𝐀𝐓𝐈𝐎 =
𝐍𝐄𝐓 𝐖𝐎𝐑𝐊𝐈𝐍𝐆 𝐂𝐀𝐏𝐈𝐓𝐀𝐋

Net Working Capital = Current Assets - Current Liabilities

(Excluding short-term bank Borrowings)

D) PROFITABILITY RATIOS:

A company should earn profits to Survive and Grow over a long period of time.
Profits are essential, but it would be wrong to assume that every action initiated by
management of a company should be aimed at maximizing profits, irrespective of social
consequences.

Profit is the difference between revenues and expenses over a period of time
(usually a year). Profit is the ultimate “Output” of a company, and it will have no future
if it fails to make sufficient profits. Therefore, the financial manager should
continuously evaluate to the efficiency of the company in term of profits. The
profitability ratios are calculated to measure the operating efficiency of the company.
Besides management of the company, creditors and owners are also interested in the
profitability of the firm. Creditors want to get interest and repayment of principle
regularly. Owners want to get a required rate of return on their investment. This is
possible only when the company earns enough profits.

Generally two major types of profitability ratios are calculated.

1. PROFITABILITY IN RELATION TO SALES

2. PROFITABILITY IN RELATION TO INVESTMENT

73
  PROFITABILITY RATIOS IN RELATION TO SALES

1. GROSS PROFIT MARGIN RATIO:

Gross profit margin reflects the efficiency with which the management produces
each unit of product. This ratio indicates the average spread between the cost of goods
sold and the sales revenue. This shows profits relative to sales after the deduction of
production costs and indicates the relation between Production costs and selling price.
A high gross profit margin relative to the industry average implies that thefirm is able to
produce at relatively lower cost.

A high gross profit margin ratio is a sign of good management. A gross margin
ratio may increase due to any of the following factors.

i. Higher sales prices, cost of goods sold remaining constant,

ii. Lower cost of goods sold, sales prices remaining constant,
iii. A combination of variations in sales prices and costs, the margin widening, and
iv. Increases in the proportionate volume of higher margin items.
The analysis of these factors will reveal to the management that how a depressed
gross profit margin can be improved.

A low gross profit margin may reflect higher cost of goods sold due to the
firms` inability to purchase raw materials at favourable terms, inefficient utilization of
plant and machinery, resulting in higher cost of production. The ratio will also be low
due to fall in prices in the market, or market reduction in selling price by the firm in an
attempt to obtain large sales volume, the cost of goods sold remaining unchanged. The
financial manager must be able to detect the causes of a falling gross margin and initiate
action to improve the situation.

𝐆𝐑𝐎𝐒𝐒 𝐏𝐑𝐎𝐅𝐈𝐓
𝐆𝐑𝐎𝐒𝐒 𝐏𝐑𝐎𝐅𝐈𝐓 𝐌𝐀𝐑𝐆𝐈𝐍 𝐑𝐀𝐓𝐈𝐎 =
𝐒𝐀𝐋𝐄𝐒

1. NET PROFIT MARGIN RATIO:

74
 Net profit is obtained when operation expenses, interest and taxes are subtracted
from the gross profit.

If the non-operating income figure is substantial, it may be excluded from PAT to

see profitability arising directly from sales. Net profit margin ratio establishes a
relationship between net profit and sales and indicated management’s efficiency in
manufacturing, administering and selling the products. This ratio is the overall measure
of the firms` ability to turn each rupee sales into net profit. If the net margin is
inadequate, the firm will fail to achieve satisfactory return on shareholder`s funds.

This ratio also indicates the firms` capacity to withstand in adverse economic
conditions. A firm with a high net margin ratio would be in an advantageous position to
survive in the case of falling selling prices, rising costs of production or declining
demand for the product. It would really be difficult for a low net margin firm to
withstand these adversities. Similarly, a firm higher net profit margin can make better
use of favourable condition, such as rising selling prices; fall in costs of production or
increasing demand for the product. Such a firm will be able to accelerate its profits at a
faster rate than a firm with a low net profit margin will.

An analyst will be able to interpret the firm’s profitability more meaningfully if

he/she evaluates both the ratios-gross margin and net margin-jointly. To illustrate, if the
gross profit margin has increased over years, but the net profit margin has either
remained constant or declined, or has not increased as fast as the gross margin, this
implies that the operating expenses relative to sales have been increasing. The
increasing expenses should be identified and controlled. Gross profit margin may
decline due to fall in sales price or increase in the cost of production.

𝐏𝐑𝐎𝐅𝐈𝐓 𝐀𝐅𝐓𝐄𝐑 𝐓𝐀𝐗

𝐍𝐄𝐓 𝐏𝐑𝐎𝐅𝐈𝐓 𝐌𝐀𝐑𝐆𝐈𝐍 𝐑𝐀𝐓𝐈𝐎 =
𝐒𝐀𝐋𝐄𝐒

2. CASH MARGIN RATIO:

Cash profit excludes depreciation. It means Net profit after interests and taxes but
before depreciation. This ratio indicates the relationship between the profit, which

75
accrues in cash and sales. Greater percentage indicates better position and Vice-Versa
as it shows the correct profit earned by the firm.

This ratio is expressed as cash profit to sales.

𝐂𝐀𝐒𝐇 𝐏𝐑𝐎𝐅𝐈𝐓
𝐂𝐀𝐒𝐇 𝐏𝐑𝐎𝐅𝐈𝐓 𝐌𝐀𝐑𝐆𝐈𝐍 𝐑𝐀𝐓𝐈𝐎 = × 𝟏𝟎𝟎
𝐒𝐀𝐋𝐄𝐒

 PROFITABILITY RATIOS IN RELATION TO INVESTMENT:

1. RETURN ON INVESTMENT:
The term investment refers to Total Assets. The funds employed in Net assets are
known as Capital Employed. Net assets equal net fixed assets plus current assets minus
Current liabilities excluding Bank loans. Alternatively, Capital employed in equal to
Net worth plus total debt.

The conventional approach of calculating return on investment (ROI) is to divide

PAT by Investment. Investment represents pool of funds supplied by shareholders and
lenders, while PAT represents residual income of shareholders; therefore, it is
conceptually unsound to use PAT in the calculation of ROI. Also, as discussed earlier,
PAT is affected by capital structure. It is, therefore more appropriate to use one of the
following measures of ROI for comparing the operating efficiency of firms.

𝐄𝐁𝐈𝐓 (𝟏 − 𝐓)
𝐑𝐎𝐈 (𝐨𝐫)𝐑𝐎𝐓𝐀 =
𝐓𝐎𝐓𝐀𝐋 𝐀𝐒𝐒𝐄𝐓𝐒
𝐄𝐁𝐈𝐓 (𝟏 − 𝐓)
𝐑𝐎𝐈 (𝐨𝐫) 𝐑𝐎𝐍𝐀 =
𝐍𝐄𝐓 𝐀𝐒𝐒𝐄𝐓𝐒

Where ROTA and RONA respectively Return on Total assets and Return on Net assets.

2. RETURN ON CAPITAL:
The ROCE is the second type of ROI. The term capital employed refers to long-
term funds supplied by the creditors and owners of the fund. It can be computed in two
ways. First, it is equal to non-current liabilities (long-term liabilities) plus owner’s

76
equity. Alternatively, it is equivalent to Net Working Capital plus Fixed Assets. Thus,
the Capital Employed provides a basis to test the profitability related to the sources of
long-term funds. A comparison of this ratio with similar firms, with the industry
average and overtime would provide sufficient insight into how efficiency the long-term
funds of owners and creditors are being used. The higher the ratio, the more efficient is
the use of Capital Employed.

𝐍𝐄𝐓 𝐏𝐑𝐎𝐅𝐈𝐓 𝐀𝐅𝐄𝐓𝐑 𝐓𝐀𝐗/𝐄𝐁𝐈𝐓

𝐑𝐎𝐂𝐄 = × 𝟏𝟎𝟎
𝐀𝐕𝐄𝐑𝐀𝐆𝐄 𝐓𝐎𝐓𝐀𝐋 𝐂𝐀𝐏𝐈𝐓𝐀𝐋 𝐄𝐌𝐏𝐋𝐎𝐘𝐄𝐃

3. RETURN ON GROSS BLOCK:

This ratio establishes a relationship between net profit and gross fixed assets.
This ratio emphasizes the profit on investment in Fixed Assets. This ratio is expressed
as follows:

𝐍𝐄𝐓 𝐏𝐑𝐎𝐅𝐈𝐓
𝐑𝐄𝐓𝐔𝐑𝐍 𝐎𝐍 𝐆𝐑𝐎𝐒𝐒 𝐁𝐋𝐎𝐂𝐊 = × 𝟏𝟎𝟎
𝐆𝐑𝐎𝐒𝐒 𝐁𝐋𝐎𝐂𝐊

Net profit means profit before Tax. Gross Block means Gross fixed assets i.e.,
Fixed assets before deducting depreciation.

3.7.4 CASH FLOW ANALYSIS

The statement of changes in financial position has an analytical value as well as
an important planning tool. It gives a clear picture of the causes of changes in the
company’s working capital position or cash position. It reveals the financing and
investment policies followed by the company in the past. The statement reveals the
non-current assets acquired by the company and manner in which they have been
financed from internal and external sources.

A projected statement of changes in financial position is an important planning

tool. The estimates of working capital for a long-term period, say, for five to ten years
help the management to plan the repayment of long-term debt and interest, acquisition
of fixed assets and payment of cash dividends.

77
 A projected statement of changes in financial position is also useful in obtaining
loans from banks and other financial institutions.

Now-a-days lenders invariably ask for such projected statements. These

statements indicate them the liquidity position of the firm and its ability to pay interest
regularly and return the principal sum.

The statement prepared to analyse the cash flows is an important tool of the short
term financial planning. To make payments in the immediate future the firm needs
cash; therefore, the firm is interested in estimating its cash balances for several months
or quarters.

There are 4 steps involved in preparation of funds flow statement:

a. Ascertain the funds from operations.

b. Preparation of statement of changes.
c. Computation of any missing figures as to profit or loss on Sale of fixed assets,
purchase or sale of fixed assets and the amount of depreciation on fixed assets
etc.
d. Finally preparation of funds flow statement.

3.7.5 TREND ANALYSIS:

Trend analysis is an important and useful technique of financial analysis.
It involves computation of index numbers of the moments of the various financial items
in the financial statements for a number of periods. It enables to know the changes in
the financial position and the operational efficiency between the period chosen.

Through trend analysis the analysis can give his opinion as to whether
favorable or unfavourable tendencies are reflected by the accounting date.

The comparative and common size balance sheets suffer from a major
limitation i.e., absence of basic standard to indicate whether the proportion of an item is
normal or analysis values are calculated for each item in isolation but conclusions are to
be drawn by studying the related items also.

78
 Trend analysis can be analysis in the following ways:

i. By calculating trend ratio (or) percentage.

ii. By plotting on graph paper (or) charge.
3.7.5.1 Trend Ratio (or) Percentage:

It involves the ascertainment of arithmetical relationship which each item of

several year to the same item of base year. Any year maybe as the base year, it is
usually the earliest year.

3.7.5.2 Procedure for calculating trend ratio:

The following procedure maybe adopted for calculating trend ratio.

i. Select any year as base year the selected year should be normal year for the base
year the trend value is taken as 100.
ii. Trend percentage of each item should be calculated with the help of following
formula.

𝐂𝐔𝐑𝐑𝐄𝐍𝐓 𝐘𝐄𝐀𝐑 𝐕𝐀𝐋𝐔𝐄

𝐓𝐑𝐄𝐍𝐃 𝐏𝐄𝐑𝐂𝐄𝐍𝐓𝐀𝐆𝐄 = × 𝟏𝟎𝟎
𝐁𝐀𝐒𝐄 𝐘𝐄𝐀𝐑 𝐕𝐀𝐋𝐔𝐄

3.7.6 COST-VOLUME-PROFIT ANALYSIS

Cost – Volume – Profit analysis is an important tool of profit planning. It
studies the relationship between cost, volume of production, sales and profit. It is not
strictly a technique used for analysis of financial statements. However, it is an
important tool for the management for decision making. Since the data is provided both
cost and financial records. It tells the volume of account of variation in output, selling
price and cost, and finally, the quantity to be produced and sold to reach the target profit
level.

79
3.8 LIMITATIONS OF FINANCIAL STATEMENT ANALYSIS:
The following are the impartment limitations of financial analysis.

1. It is only a study of internal reports.

2. Financial analysis is based upon only monetary information and non-monetary factors
are ignored.
3. It does not consider changes in price levels.
4. As the financial statements are prepared on the basis of a going concern it does not
give exact position thus accounting concepts and contentions cause a serious
limitation to financial analysis.
5. Changes in accounting procedure by a firm may often make financial analysis
misleading.
6. Analysis is only means and not an end in itself. The analyst has to make interpretation
and draw has own conclusion. Different people may interpret the same analysis in
different ways.

80
 Comparative Statement for the year 2012 and 2013
(In crores)

Absolute
Particulars 2012 2013 % of Change
Change
Assets
Fixed Assets 23800.07 28685.27 4885.2 20.52
Current Assets 6232.59 9054.19 2821.6 45.27
Total 30032.66 37739.46 7706.8 25.6
Liabilities
Current
7252.96 8970.9 1717.94 23.68
Liabilities
Other 7272.39 11485.49 4213.1 57.93
Total 14525.35 20456.39 5931.04 40.83

Graph: 1

40000
35000
30000
25000 2012
20000 2013
15000 Absolute Change
10000 % of Change
5000
0
Fixed Current Total Current Other Total
Assets Assets Assets Liabilities Liabilities

Interpretation:
The total current assets of the company have increased by 45.27%. While current
liabilities have increased only to the extent of 57.93%. This indication of liquidity
position of the firm is highly unsatisfactory. The total fixed assets have increased by
25.6% but at the same time total liabilities, have increased by 40.83%. It is observed
that overall financial position of the business concern is not good.

81
 Comparative Statement for the year 2013 and 2014
(In crores)

Particulars 2013 2014 Absolute Change % of Change

Assets
Fixed Assets 28685.27 31204.48 2519.21 8.78
Current Assets 9054.19 11250.32 2196.13 24.25
Total 37739.46 42454.8 4392.26 10.78
Liabilities
Current Liabilities 8970.9 9471.33 500.43 5.57
Other 11485.49 13267.67 1782.18 15.51
Total 20456.39 22739 2282.61 11.15

Graph: 2

45000

I 40000
35000
n 30000
2013
t 25000
2014
20000
e Absolute Change
15000
% of Change
r 10000
5000
p
0
r Fixed Current Total Current Other Total
Assets Assets Assets Liabilities Liabilities
e

Interpretation:

The total current asset of the company has increased by 24.25%. While current
liabilities have increased only to the extent of 5.57%. This indication of liquidity
position of the firm is highly satisfactory. The total fixed assets have increased by
10.78% but at the same time total liabilities have increased by 11.15%. It is observed
that overall financial position of the business concern is not good.

82
 Comparative Statement for the year 2014 and 2015
(In crores)

Particulars 2014 2015 Absolute Change % of Change

Assets
Fixed Assets 31204.48 32119.71 915.23 2.93

Current Assets 11250.32 10595.33 (654.99) (5.82)

42454.8 42715.04 260.24 0.61

Total
Liabilities
Current Liabilities 9471.33 9992.24 520.91 5.50

13267.67 13781.47 513.8 3.87

Other

Total 22739 23773.71 1034.71 4.55

Graph: 3

45000
40000
35000
30000 2014
25000
2015
20000
15000 Absolute Change
10000 % of change
5000
0
-5000 Fixed current Total Current other Total
Assets Assets Asssets liabilities Liabilities

Interpretation:

The total current asset of the company has decreased by 2.93%. While current liabilities
have increased only to the extent of 5.50%. This indication of liquidity position of the
firm is unsatisfactory. The total fixed assets have increased by 0.61% but at the same
time total liabilities have increased by 4.55%. It is observed that overall financial
position of the business concern is not good.
83
 Comparative Statement for the year 2015 and 2016
(In crores)

Particulars 2015 2016 Absolute Change % of Change

Assets
Fixed Assets 32119.71 32149.27 29.56 0.09

Current Assets 10595.33 10755.84 160.51 1.51

42715.04 42905.11 190.07 0.44

Total
Liabilities
Current Liabilities 9992.24 10882.27 890.03 8.91

13781.47 11527.12 (2254.35) (16.36)

Other

Total 23773.71 22409.39 (1364.32) (5.74)

Graph: 4

50000

40000
2015
30000
2016
20000
Absolute change
10000 % of Change
0
Fixed Current Total Current Others Total
-10000 Assets Assets Assets Liabilities Liabilities

Interpretation:

The total current asset of the company has increased by 1.51%. While current liabilities
have increased only to the extent of 8.91%. This indication of liquidity position of the
firm is highly unsatisfactory. The total fixed assets have increased by 0.44% but at the
same time total liabilities have decreased by 5.74%. It is observed that overall financial
position of the business concern is good.

84
 Comparative Statement for the year 2016 and 2017
(In crores)

Particulars 2016 2017 Absolute Change % of Change

Assets
Fixed Assets 32149.27 47125 14975.73 46.58

Current Assets 10755.84 9145 (1610.84) (14.98)

42905.11 56270 13364.89 31.15

Total
Liabilities
Current Liabilities 10882.27 8375 (2507.27) (23.04)

11527.12 9746 (1781.12) (15.45)

Other

Total 22409.39 18121 (4288.39) (19.14)

Graph: 5

60000
50000
40000 2016
30000 2017
20000 Absolute change
10000 % of Change
0
-10000 Fixed Current Total Current Others Total
Assets Assets Assets Liabilities Liabilities

Interpretation:

The total current asset of the company has decreased by 14.98%. While current
liabilities have decreased by23.04%. This indication of liquidity position of the firm is
satisfactory. The total fixed assets have increased by 31.15% but at the same time total
liabilities have decreased by 19.14%. It is observed that overall financial position of the
business concern is good.

85
 RATIO ANALYSIS IN GAIL INDIA LTD

1. CURRENT RATIO:

CURRENT ASSETS
CURRENT RATIO =
CURRENT LIABILITIES

Table: 4.1

(In Crores)

CURRENT CURRENT
YEAR RATIO
ASSETS LIABILITIES
2012-2013 9246.27 8970.90 1.03
2013-2014 1146.56 9471.33 1.21
2014-2015 10595.33 9992.24 1.06
2015-2016 10713.60 10882.27 0.98
2016-2017 8196.62 8375.42 1.97

86
 Graph-4.1.1

CURRENT RATIO
2.5
2
Ratio

1.5
1
RATIO
0.5
0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Year

Interpretation:

 Current ratio measures the liquidity of the firm by its standard rule is 2:1.
 There is a fluctuation in the current liabilities until 2017.
 As such current ratio can be used to make a rough estimate of a company’s Financial
health.
 A current ratio below shows that the company is not in good financial health, it does not
necessarily mean that it will go bankrupt.
 It has been observed that the current ratio of GAIL is below compared with ideal ratio in
2015-2016. But it is high ideal ratio for the year 2016-2017.
 An increase in the current ratio represents improvement in the liquidity position of the
firm while a decrease in the current ratio represents that there has been deterioration in
the liquidity position of the firm.
 A ratio equal to or near 2:1 is considered as a standard or normal or satisfactory.

87
2. QUICK RATIO:

QUICK ASSETS
QUICK RATIO =
QUICK LIABILITIES

Table: 4.2

(In Crores.)

YEAR QUICK QUICK QUICK

ASSETS LIABILITIES RATIO
2012-2013 7479.91 8970.90 0.83
2013-2014 8995.55 9471.33 0.94
2014-2015 8514.28 9992.24 0.85
2015-2016 8998.64 10882.27 0.82
2016-2017 6498.24 8375.42 0.77

88
 Graph-4.2.1

QUICK RATIO
1
0.9
0.8
0.7
0.6
Ratio

0.5
0.4 QUICK RATIO
0.3
0.2
0.1
0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Year

Interpretation:

 During the period of study, the value of quick ratio is lower than the ideal value which
indicates the efficiency of the company doesn’t meet immediate requirements. The
overall trend of quick ratio shows up and downward trend.
 Quick ratio during the year 2013-2014 it attains maximum value 0.94.
 In the above diagram it slightly reduced from 2015 to 2017.
 Having a quick ratio of 1:1 is considered satisfactory.
 During the period 16-17 the liquidity position of the company is slightly decreases when
compared to 2015&2016.

89
3. ABSOLUTE LIQUID/ CASH RATIO

ABSOLUTE ASSETS
ABSOLUTE LIQUID/CASH RATIO =
CURRENT LIABILITIES

Table: 4.3

(In Crores)

YEAR ABSOLUTE CURRENT RATIO

ASSETS LIABILITIES
2012-2013 2357.94 8970.90 0.26
2013-2014 2650.98 9471.33 0.27
2014-2015 1141.64 9992.24 0.11
2015-2016 1793.87 10882.27 0.16
2016-2017 1341.88 8375.42 0.16

90
 Graph-4.3.1

ABSOLUTE LIQUID RATIO

0.3

0.25

0.2
Ratio

0.15

0.1 RATIO

0.05

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Year

Interpretation:

 This Cash Ratio indicates that the capacity of the company to realize current liabilities
with its liquidity position.
 The most favourable and optimum value for this ratio should be 1:2 .it indicates the
adequacy of the 50% worth absolute liquid assets to pay the 100% worth current
liabilities in time.
 The Absolute ratio has decreased drastically for the year 2014-2015. It enjoyed high
liquidity position 2013-2014 as the ratio was above ideal ratio.
 From the year 2016-17 the absolute liquidity ratio is almost equal to 2015-2016.
 The Absolute Liquid Ratio undergoes many fluctuations.

91
4. GROSS PROFIT RATIO:

GROSS PROFIT (EBIT)

GROSS PROFIT RATIO = × 100
SALES

Table: 4.4

(In Crores)

YEAR GROSS SALES RATIO

PROFIT
2012-2013 6057.77 48005.27 12.68
2013-2014 6402.37 58012.06 11.03
2014-2015 4284.36 57291.97 7.47
2015-2016 3172.80 52088.98 6.09
2016-2017 5411 48789 11.09

92
 Graph: 4.4.1

GROSS PROFIT RATIO

14

12

10

8
Ratio

6
RATIO
4

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Year

Interpretation:

 The above table shows that the Gross profit Ratio during the year 2015-16 was 6.09%.
 In the year 2014-2015 it was increased to 7.47%. In the following year 2013-14
increased to 11.03%. In the year 2012-13 there was slight increases to 12.68%. In this
last year 2016-17 was the gross profit ratio was 11.09%.
 This shows that company may reduce the price of the products without incurring any
losses because there were many fluctuations in Gross Profit Ratio.

93
5. NET PROFIT RATIO

NET PROFIT (AFTER TAX)

NET PROFIT RATIO = × 100
SALES

Table: 4.5

(In Crores)

YEAR NET SALES RATIO

PROFIT (%)
2012-2013 4022.20 48005.27 8.3
2013-2014 4375.27 58012.06 7.5
2014-2015 3039.17 57291.97 5.3
2015-2016 2298.90 52088.98 4.4
2016-2017 3503 48789 7.1

94
 Graph: 4.5.1

NET PROFIT RATIO

9
8
7
6
5
Ratio

4
RATIO
3
2
1
0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Year

Interpretation:

 From the above table, it is found that the net profit has been fluctuating during the study
period.
 In the year 2015-16 the net profit ratio was 4.4%. In the year 2014-15 it was increased
to 5.3%. In the year 2016-17 it was further increased 7.1%.
 During the year 2013-14 there was a slight increase to 7.5%. During the year 2012-13
the net profit ratio was 8.3%.
 From the study, we gain that net profit ratio was increased from the last year 2015-16
than 2016-17.

95
6. OPERATING PROFIT RATIO

OPERATING PROFIT
OPERATING PROFIT RATIO = × 100
SALES

Table: 4.6

(In Crores)

YEAR OPERATING SALES RATIO

PROFIT
2012-2013 5678.58 48005.27 11.82
2013-2014 6141.48 58012.06 10.59
2014-2015 4532.73 57291.97 7.91
2015-2016 3182.65 52088.98 6.11
2016-2017 5623 48789 11.52

96
 Graph: 4.6.1

OPERATING PROFIT RATIO

14
12
10
8
Ratio

6
RATIO
4
2
0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Year

Interpretation:

 From the above table, it is found that the operating profit has been fluctuating during the
study period.
 In the year 2012-13 the operating profit ratio was 11.82%. In the year 2013-14 it was
decreased to 10.59%. In the year 2014-15 it was again decreased to 7.91%.
 During the year 2015-16 there was a decrease to 6.11%. During the year 2016-17 the
operating profit ratio was increased 11.52%.
 There were fluctuations of operating profit ratio in above years. It indicates the
company’s operational efficiency.

97
7. RETURN ON INVESTMENT RATIO (ROI)

NET PROFIT (AFTER TAX)

RETURN ON INVESTMENT RATIO =
TOTAL ASSETS

Table: 4.7

(In Crores)

PROFIT
TOTAL
YEAR AFTER RATIO
ASSETS
TAX
2012-2013 4022.20 24227.8 0.16
2013-2014 4375.27 27072.33 0.16
2014-2015 3039.17 29119.52 0.10
2015-2016 2298.90 305847.87 0.07
2016-2017 3503 38149 0,09

98
 Graph: 4.7.1

ROI
0.18
0.16
0.14
0.12
Ratio

0.1
0.08
0.06 RATIO
0.04
0.02
0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Year

Interpretation:

 Return on investment ratio was 0.16, 0.16, 0.1, 0.07 and 0.09 in respective year of 2013,
2014, 2015, 2016 and 2017 so the company achieved maximum Return on investment
ratio in 2014.
 Highest return on investment was recorded in 2013-14. It has been observed that the
ROI is fluctuating from year to year.

99
8. STOCK TURNOVER RATIO

SALES
STOCK TURNOVER RATIO =
STOCK

Table: 4.8

(In Crores)

YEAR SALES STOCK RATIO

2012-2013 48005.27 1766.36 27.17
2013-2014 58012.06 2467.01 23.51
2014-2015 57291.97 2081.05 27.53
2015-2016 52088.98 1714.05 30.38
2016-2017 48789 1698.38 28.72

100
 Graph-4.8.1

STOCK TURNOVER RATIO

40

30
Ratio

20

10 RATIO

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Year

Interpretation:

 Stock Turnover ratio was 27.17, 23.51, 27.53, 30.38 and 28.73 in respective year of
2013, 2014, 2015, 2016 and 2017.
 So the company has maximum Stock Turnover Ratio in the year 2016.
 The Inventory Turnover Ratio during the year 2016-17 was 28.72 and less stock
turnover ratio in the year 2013-2014.

 Higher ratio also indicates that the company is able to meet the customers demand properly.

101
9. DEBTORS TURN OVER RATIO

NET CREDIT ANNUAL SALES

DEBTORS TURNOVER RATIO =
AVERAGE TRADE DEBTORS

Table: 4.9

(In Crores)

YEAR SALES DEBTORS RATIO

2012-2013 48005.27 2551.34 18.81
2013-2014 58012.06 2811.99 20.63
2014-2015 57291.97 3094.52 18.51
2015-2016 52088.98 2727.61 19.09
2016-2017 48148.85 2724.54 17.67

102
 Graph: 4.9.1

DEBTORS TURNOVER RATIO

21
20
19
Ratio

18
RATIO
17
16
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Year

Interpretation:

 Debtors Turnover Ratio should be very high then only the company will be receiving its
debts within a short period.
 It indicates the company has taken less time to convert the credit sales into cash.
 In the above Table shows the Debtors turnover ratio of 2013-2017.
 The debtors turnover ratio was started with 18.81 in the year 2013 and it increased to
20.63 in the year 2014, it was decreased to 18.51 in the year 2015, and it was increased
to 19.09 in 2016 and in the year 2017it again decreased to 17.67
 .It can be concluded that the management is efficient in converting the debtors into cash.

103
10. FIXED ASSETS TURNOVER RATIO

SALES
FIXED ASSETS TURNOVER RATIO =
NET FIXED ASSETS

Table: 4.10

(In Crores)

NET FIXED
YEAR SALES RATIO
ASSETS
2012-2013 48005.27 27171.66 1.76
2013-2014 58012.06 29487.42 1.96
2014-2015 57291.97 31418.17 1.82
2015-2016 52088.98 46949.62 1.10
2016-2017 48148.85 47064.72 1.02

104
 Graph: 4.10.1

FIXED ASSETS TURNOVER RATIO

2.5

1.5
Ratio

1 Ratio

0.5

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Year

Interpretation:

 Fixed asset turnover is the ratio of sales to the value of fixed assets. It indicates how
well the business is using its fixed assets to generate sales
 A declining ratio may indicate that the business is over invested in plant, equipment or
other fixed assets.
 Fixed assets turnover ratio was 1.76, 1.96, 1.82, 1.10, 1.02 in respective years of 2013,
2014, 2015, 2016, and 2017 so the company achieved maximum fixed asset turnover
ratio in 2014.
 Fixed turnover ratio was not constant and fluctuated in every year.

105
11. ASSETS TURNOVER RATIO

SALES
ASSETS TURNOVER RATIO =
TOTAL ASSETS

Table: 4.11

(In Crores)

TOTAL
YEAR SALES RATIO
ASSETS

2012-2013 48005.27 47,664.86 1.00

2013-2014 58012.06 53,168.91 1.09
2014-2015 57291.97 55,628.87 1.02
2015-2016 52088.98 56,690.37 0.91

2016-2017 48148.85 57,791.40 0.83

106
 Graph: 4.11.1

ASSETS TURNOVER RATIO

1.2

0.8
Ratio

0.6
Ratio
0.4

0.2

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Year

Interpretation:

 The Total Assets turnover ratio for the year 2012-13 is 1.00 but it was increased in the
year 2013-14 is 1.09 and in the year 2014-15 the ratio is decreased 1.02 in the year
2016-17 the ratio is decreased from 0.91 to 0.83.
 It can be concluded that the management is inefficient in converting the Assets in to
cash.
 The ideal ratio is total Assets turnover ratio of 5 from the above observation. The GAIL
India Ltd firm was not fulfil the standard norm in year overall study period.

107
 12. DEBT EQUITY RATIO

DEBT
DEBT EQUITY RATIO =
EQUITY

Table: 4.12

(In Crores)

YEAR DEBT EQUITY RATIO

2012-2013 9063.50 1268.48 7.14
2013-2014 10268.08 1268.48 8.09
2014-2015 9555.91 1268.48 7.53
2015-2016 8060.12 6.35
1268.48
2016-2017 5063.04 1691.30 2.99

108
 Graph: 4.12.1

DEBT-EQUITY RATIO
9
8
7
6
Ratio

5
4
Ratio
3
2
1
0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Year

Interpretation:

 The debt equity ratio is a financial ratio indicating the relative proportion of
shareholders equity and used to finance a company asset.
 The Debt-Equity ratio is fluctuating year to year that was high in the year 2013-2014,
8.09.
 There were subsequent decreases in the year 2014-2015, 2012-2013, 2015-2016 and
2016-2017 to 7.53, 7.14, 6.35 and 2.99 respectively.

109
13. WORKING CAPITALTURNOVER RATIO

SALES
NET WORKING CAPITAL =
NET WORKING CAPITAL

Table: 4.13

(In Crores)

NET WORKING
YEAR SALES RATIO
CAPITAL
2012-2013 48005.27 275.37 174.33
2013-2014 58012.06 1991.23 29.13
2014-2015 57291.97 603.05 95.00
2015-2016 52088.98 (168.67) (308.82)
2016-2017 48148.85 711.2 67.70

110
 Graph: 4.13.1

200

100

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
RATIO

-100
RATIO

-200

-300

-400
YEAR

Interpretation:

 The working capital turnover ratio is indicates a company effectiveness in using its
working capital.
 The working capital turnover ratio is fluctuating year to year that was high in the year
2012-2013, 174.33.
 There was subsequent decreases in the year 2013-2014, 2014-2015, 2015-2016 and
2016-2017 to 29.13 times and 95.00 times and -308.82 and 67.70 times respectively.

111
 FINDINGS

 The Current Ratio of the Company is very good which shows the high liquidity
position.
 The earnings per share ratio have increased year by year.
 As per records, the company has not issued debentures during the year. The company
has not raised money by public issues during the year.
 The operating margins have shown an increasing trend for most of years and the income
also increased for many years.

 The net cash generated from operating activities are showing a positive trend and
finance conditions of the company are excellent.
 The main sources of the funds of Gail India Ltd were arranged by about 20 financial
institutions. Among these, the major sources are IDBI Bank Ltd., State Bank of India
etc.
 Fixed assets turnover was 1.02% in the year 2016-17. Fixed assets turnover ratio was
1.76, 1.96, 1.82, 1.10, 1.02 in respective years of 2013, 2014, 2015, 2016, and 2017 so
the company achieved maximum fixed asset turnover ratio in 2014.
 Fixed turnover ratio was not constant and fluctuated in every year.
 Return on total assets that decreased of 0.07 in the year 2015-2016 and increased of0.16
in the year 2013-2014 and in the year 2016-2017 it was 0.09
 Operating ratio has increased by11.82 in the year 2012-2013 and decreased by 6.11 in
the year 2015-2016 and finally in the year 2016-2017 it was 11.52.
 Asset turnover ratio was 1.2 in the year 2016-17.
 Gross profit ratio has come down by 6.09% in year 2015-2016and up by12.68% in
2012-2013 and in the year 2016-2017 it was 11.09%.
 Sales show the increasing trend at the rate in every year.

112
 SUGGESTIONS

 The current ratio of the company is above the standard ratio in all the 5 years under
study, Hence it should be maintained at standard ratio.
 Suitable training may be imparted to all the executives including labourers as and when
they are recruited.
 The gross profit ratio should be increased through reducing the manufacturing expenses
 The gross profit of GAIL has to be increased; this can be done by taking steps to reduce
the cost of sales, which have its own affect over the gross profit. As the consumption of
raw materials holds a wider part in the cost of sales. Researcher who is in the hands of
the company to adopt consistent pricing policy regarding raw materials which
ultimately reduce the cost of sales & which in turn improves the gross profit in the
subsequent years.
 The company may take one of the measures for improving more profits; sale should be
enhanced from into end through innovative marketing techniques. In a competitive
business world, unless & other wise aggressive it is very difficult to achieve its required
sales.
 The concern must take measures to avoid dead stock – which has an adverse.
 Effect over the liquidity of the concern. The concern is required to develop an effective
inventory management system.
 Company’s fixed assets, especially intangible assets show decreasing trend the company
should concentrate on the intangible assets decrease.
 Sales are to be increased to keep with increased in fixed Assets in order improve its
fixed Assets turnover ratio.
 It can be suggested to take remedial measures to increase the net profit ratio such that it
leads in increasing the company performance.

113
 SUMMARY

 The aim of this is to provide brief insights of the concept of Financial Statement and
Performance Analysis and its importance. This section shall also include the objectives
with which the current study had been undertaken, need for such study and limitations
of such work.
 The purpose of this unit is to identify the current trends at industry level relating to Gas
Industry in India and Andhra Pradesh. Origin and nature of the industry with trends in
production at national level gathered from economic survey of India will be included
here. This contains the profile of GAIL (India) Limited which shall cover achievements
of the company after its incorporation in 1984 and current position of the company in
terms of effective utilization of capital and its sources too.
 The concept of Financial Statement and Performance Analysis and various theoretical
dimensions available in this concept shall be presented in this study. Various issues of
Financial Statement Analysis from definition to application shall be discussed in this
unit.
 This is the most important of total research work. The response of employee and the
clear examination of financial statements will be tabulated and appropriate graphs will
be used to interpret the intentions of the employee on Financial Statement and
Performance Analysis
 Major findings of the study regarding Financial Statement and Performance Analysis
practices prevailing in the organization and employee perception over such practices
shall be included here and followed by suitable suggestions based such findings were
given in this study.

114
 CONCLUSION

 The Gail India Ltd has been founded in 1984 and it is one of the major Gas and Oil
Company in the Asia and having much more capital investment. We know that the Gail
India Ltd as a large organization might have long gestation period. But the top
management of Gail conducts so many training and development programs to improve
their performance, not only this but also frequent technological changes due to the
above factors in the initial stage.
 This study concentrated on the financial state of affairs of the company Gail India Ltd.
It involved study of cash flow statements, Balance sheets, Profit & Loss accounts and
their comparison over the last five years in the industry. It has presented a broader
picture of the financial position of the company. The study analysed the company’s
success in being able to effectively manage its day-to-day requirements pertaining to
cash flow and effectively channelizing the short term and long term funds of the
company to meet the requirements.

 Their main aim is to create and strengthen significant global presence to pursue
strategic, attractive opportunities that leverage GAIL‘s capabilities while effectively
managing risks.

115