With a market capitalization of ₹808b, GAIL (India) Limited (NSE:GAIL) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there’s plenty of stocks available to the public for trading. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Using the most recent data for GAIL, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
How much cash does GAIL generate through its operations?
GAIL’s debt levels have fallen from ₹60b to ₹32b over the last 12 months , which also accounts for long term debt. With this reduction in debt, the current cash and short-term investment levels stands at ₹25b for investing into the business. On top of this, GAIL has produced cash from operations of ₹88b over the same time period, resulting in an operating cash to total debt ratio of 272%, indicating that GAIL’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In GAIL’s case, it is able to generate 2.72x cash from its debt capital.
Can GAIL meet its short-term obligations with the cash in hand?
Looking at GAIL’s ₹112b in current liabilities, the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.97x.
Does GAIL face the risk of succumbing to its debt-load?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. GAIL’s level of debt is low relative to its total equity, at 7.7%. This range is considered safe as GAIL is not taking on too much debt obligation, which may be constraining for future growth.
GAIL’s high cash coverage and conservative debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. But it is still important for shareholders to understand why the company isn’t increasing its cheaper cost of capital to fund future growth, especially if meeting short-term obligations could also bring about issues. I admit this is a fairly basic analysis for GAIL’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research GAIL (India) to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GAIL’s future growth? Take a look at our free research report of analyst consensus for GAIL’s outlook.
- Valuation: What is GAIL worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether GAIL is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.