Gail India, a state-run leading supplier of gas, has announced its plans to build a 1500 Kiloton per annum (KTA) ethane plant in the Sehore district of MP. This plant will be producing different products of ethylene and thus this Gail India project has been named as Ethane Cracker Project.
As per the GAIL stock exchange filing, the investment projected for this plant and the whole setup is around ₹ 60000 crores. The state-run organization already approached the government of MP to assist them and help them with the necessary support required to start the project.
Details of the Ethane Cracker Project
GAIL India’s Ethane Cracker Project is expected to be India’s one of the largest ethane projects in the petrochemical sector. It has also plans to set up a Greenfield petrochemical complex, which is included in this project itself. While ethane is the primary product to be produced in the plan, however, there will be other petrochemical products to be produced in the complex as well, which include LLDPE, MEG, HDPE, and Propylene.
For this project, the government of MP has already planned to allocate 800 hectares of land to the Madhya Pradesh Industrial Development Corporation and the documentation process has already begun. The project is expected to generate around 5600 jobs during the execution phase where more than 15000 individuals can be employed. For this GAIL India, is building a 70-hectare township additionally for its staff, employees, and workers.
The project is anticipated to start from the beginning of next year, 2025 and the commercial production is expected to begin from FY2030-31.
Performance of GAIL India
GAIL India’s sales have increased threefold in the past three financial years, however, its profits have taken a dip. In FY21, its gross sales stood at ₹ 57208 crores while it almost grew 3X in FY23 to ₹ 143531 crore. However, its EBITDA has fallen in FY23 compared to FY22 when it was at ₹ 18086 crores. In FY23 it was around ₹ 10325 crore, which is just a bit above the FY21 level. Similarly, the PAT has fallen to ₹ 5616 crore in FY23 from ₹ 12256 crore in FY22.
In the March quarter of 2024, the company reported a dip in its revenue of around 5.6% while its net profit fell by 23% and above. The poor performance of the company is linked to the overall petrochemical sector performance in FY24.
Stock Market Reaction
The stock market reacted adversely to the announcement of GAIL India and the price of the stock fell by more than 2% at the end of 10 June 2024, it closed at ₹ 208.05 from its previous day’s close at ₹ 212.60. However, the stock has given close to a 100% return in the past year. Even it has risen around 25% since the beginning of this year.
One of the major reasons behind the fall in the stock price after the announcement could be the oversupply of ethane, and decreasing demand for the commodity which went down since the pandemic. Going by the reports of the March quarter, the government has the largest shareholding in the company that is 51.9%, while Indian Oil Corp. has 2.5% stakes in GAIL, and ONGC has 5%.
One thing to keep in mind is that the approval for the investment is yet to be sanctioned by GAIL India’s board and only after getting a nod from the Madhya Pradesh government, the company will seek the approval.
Conclusion
Whether this Ethane Cracker Project will turn out to be a fortune maker for the state-run GAIL or not, only time can tell. It is too early to predict the cash flows of the project however, as approvals come from the government and the board of members, clarity will be there about the project.
Source: https://economictimes.indiatimes.com, https://www.cnbctv18.com
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