GAIL (India) Limited , the country's largest natural gas transmission and distribution company, is expected to see an increase in its EBITDA net leverage over the next two years, according to a recent report by Fitch Ratings. The international credit rating agency anticipates that GAIL's EBITDA net leverage will rise to 1.5x within the next two years, driven by increased capital expenditures and higher shareholder returns.

Financial Performance and Capital Expenditure

GAIL has demonstrated strong financial performance in recent years, with its consolidated EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) showing significant growth. For the financial year ending March 2024, GAIL reported an EBITDA of ₹15,304.10 crore, marking a substantial 73.62% increase from the previous year's ₹8,814.70 crore.

The company's robust EBITDA growth can be attributed to several factors:

1. Improved Operating Profit: GAIL's operating profit for FY 2024 stood at ₹14,296.30 crore, nearly doubling from ₹7,486.20 crore in the previous year, representing a 90.97% increase.

2. Revenue Stability: Despite a slight decrease in revenue, which fell by 8.68% to ₹134,236.30 crore in FY 2024 from ₹146,996.80 crore in FY 2023, the company managed to significantly improve its profitability.

3. Efficient Cost Management: The company's expenses decreased by 13.93% to ₹118,932.10 crore in FY 2024, compared to ₹138,182.10 crore in the previous year, indicating improved operational efficiency.

Capital Expenditure and Expansion Plans

The anticipated rise in EBITDA net leverage is likely linked to GAIL's ambitious expansion plans. This is evident from the company's balance sheet, which shows:

1. Increased Fixed Assets: GAIL's fixed assets grew by 10.50% to ₹48,959.70 crore in FY 2024, up from ₹44,307.30 crore in the previous year.

2. Higher Capital Work in Progress (CWIP): The CWIP saw a significant increase of 16.07%, reaching ₹15,858.70 crore in FY 2024, compared to ₹13,662.50 crore in FY 2023. This indicates ongoing projects and investments in infrastructure.

Shareholder Returns and Financial Strategy

While specific details about increased shareholder returns are not provided in the financial data, the growth in the company's reserve and surplus by 17.37% to ₹57,604.30 crore in FY 2024 suggests a strong financial position that could support higher returns to shareholders.

Implications of Increased Leverage

The projected increase in EBITDA net leverage to 1.5x over the next two years, as forecasted by Fitch, indicates that GAIL is taking on more debt relative to its earnings. This strategy could be aimed at funding its expansion plans and improving shareholder value. However, it also implies that the company will need to manage its debt carefully and ensure that its growth in earnings keeps pace with the increased leverage.

Conclusion

GAIL's financial data reflects a company in a phase of strategic growth, balancing expansion with profitability. While the anticipated increase in EBITDA net leverage suggests a more aggressive financial strategy, GAIL's strong financial performance and efficient cost management provide a solid foundation for its future plans. Investors and stakeholders will likely be watching closely to see how the company manages this balance between growth, leverage, and shareholder returns in the coming years.

Fitch Ratings has reaffirmed GAIL (India) Limited 's credit rating at 'BBB-' with a stable outlook, underscoring the company's solid financial position and low default risk in the global energy sector.

Rating Implications

The affirmation of GAIL's 'BBB-' rating by Fitch Ratings carries significant implications for the company:

• Investment Grade Status: The 'BBB-' rating falls within the investment grade category, indicating that GAIL is considered to have a relatively low risk of default.
• Financial Stability: This rating suggests that GAIL maintains a stable financial profile, which is crucial for its operations in the dynamic energy market.
• Creditworthiness: The rating reflects Fitch's assessment of GAIL's ability to meet its financial commitments, which is important for investors and stakeholders.

Stable Outlook

Fitch Ratings has maintained a stable outlook for GAIL, which provides additional insights:

• Near-Term Stability: The stable outlook indicates that Fitch does not anticipate significant changes to GAIL's credit profile in the foreseeable future.
• Balanced Risk Assessment: This outlook suggests a balanced view of the company's financial and operational risks against its strengths and market position.

Market Implications

The reaffirmation of GAIL's credit rating could have several implications for the company and its stakeholders:

• Investor Confidence: A stable investment grade rating may help maintain or potentially boost investor confidence in GAIL.
• Financing Opportunities: The rating could positively impact GAIL's ability to access capital markets and secure financing on favorable terms.
• Industry Standing: As a major player in India's natural gas sector, GAIL's stable rating may reflect positively on the overall perception of the industry.

This rating action by Fitch Ratings provides a snapshot of GAIL's current financial health and credit risk profile, offering valuable information for investors, partners, and industry observers.