Stock Valuation: GAIL (India) Ltd (532155)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
GAIL (INDIA) LTD India/
BOM
Utilities – Utilities – Regulated – Utilities – Regulated Gas INR366.15
@ 25 Jul 2018
COMPANY PROFILE GAIL (India) Ltd is engaged in exploration, production, processing, transmission, distribution and marketing of natural gas value chain and related services. It is also engaged in manufacturing of petrochemicals and LPG and other Liquid Hydrocarbons.

GAIL (India) Ltd is an Indian natural gas processing and distribution company of whom the Government of India owns a majority of shares. GAIL India’s core business is the sale and transmission of both natural gas and a variety of LPGs, or liquefied petroleum gases. The company segments its operations into Natural Gas Marketing, Transmission, Petrochemicals, LPG and Other Liquid Hydrocarbon Production, and Exploration and Production businesses. GAIL India derives the vast majority of its revenue from its Natural Gas Marketing division. The sale of natural gas to industrial customers, such as power plants and fertilizer manufacturers, represent this unit’s primary revenue stream. The company controls a majority of India’s consumption and transmission market share.

Stock Code 532155
Stock Valuation Below

GAIL (India) Price to Book

Price to Earnings, Price to Sales and Price to Cash Flow ratios all value a company based on what it is generating (i.e. profits, sales or cash flow). Price to Book ratio is different in that it values a company based on what it owns (i.e. its net assets). This is usually a suitable valuation indicator for a financial institution, which frequently revalues its assets and liabilities, or a company with huge asset base e.g. utilities company.
At the price of INR366.15 as at 25 Jul 2018, Gail (India) Ltd is trading at a Price to Book Ratio of 2.0 times current book value.  This is a 17% premium to its historical average Price to Book Ratio of 1.7 times.
Is the stock overvalued? One should not just look at one indicator to determine the fair value of a stock.
ProThinker believes in using a combination of valuation methods to decide whether a stock is over or undervalued? The five ratios we use are Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield. We use multiple methods to value a stock because each has its benefits as well as shortcomings. Price to Earnings and Price to Cash Flow Ratios relate stock price to profitability but are meaningless when the comany has negative earnings or cash flows. Price to Sales Ratio is more stable because sales are never negative. However, this does not tell us whether the company is able to sell profitably. Price to Book Ratio gives us an indication as to how much we are paying for the company’s assets but it is not directly related to the company’s profitability. Dividend Yield cannot be used for companies that are paying little to no dividends.
While it is important to value stocks based on multiple valuation methods, this often leads to differing views on valuation. One indicator may suggest that a stock is overvalued while another suggest that it is undervalued. This does not help an investor who needs to make a definite decision whether to buy, hold or sell the stock. That is why we advocate the use of a Composite Valuation Indicator, which is derived from the best combination of the five indicators above. A Composite Valuation Indicator will give you ONE conclusion on whether a stock is under or over valued.
To find out more about our valuation methodology, click here. 
Source of Data: Charts are from ProThinker Stock Report. Company description, historical financial statements data and price data are from gurufocus.com. Estimates are from gurufocus and/or 4-traders.com – Thomson Reuters.
Disclaimer: This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither ProThinker nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of ProThinker. Copyright(c) 2018. All rights reserved.

 

Leave a Reply

Your email address will not be published. Required fields are marked *