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2 September 2011 GAIL 1 | Page
Gas Authority of India Ltd
Sector: Oil & Gas Ticker (BSE/NSE):GAIL/GAIL Index: Nifty
Meeting Type: Annual General Meeting Meeting date: 7 Sep 2011 Meeting Time: 10:30 am
Proxy deadline: 5 Sep 2011, 10:30 am Notice date: 18 July 2011
Meeting Venue: Air Force Auditorium, Subroto Park, New Delhi – 110010
Table 1: Financial Profile (consolidated) Chart 1: GAIL v/s Sensex v/s Nifty (3 year performance)
Particulars FY09 FY10 FY11
Net Sales (Rs cr) 24,063 25,677 33,260
Growth Y/Y 32.7% 6.7% 29.5%
EBIDTA (Rs cr) 5,242 6,051 7,054
Growth Y/Y 7.1% 15.4% 16.6%
EBIDTA margin 21.8% 23.6% 21.2%
PAT (Rs. Cr 2,826 3,328 4,021
Growth Y/Y 1.6% 17.7% 20.8%
PAT margin 11.7% 13.0% 12.1%
Gross Cash Accruals 3,545 4,151 4,909
ROCE 23.5% 22.5% 21.9%
ROE 18.4% 18.7% 19.0%
Source: Company, IIAS Research Source: Reuters
EXECUTIVE SUMMARY:
Resolution Brief
Ord/Spl*
Description of Resolution IIAS Recommends
1)
Consider and adopt the Financial statements for FY11
Ord.
Consider and adopt: the Balance Sheet as at 31 March 2011; Profit and Loss Account for FY11; and reports of the Board of Directors and Auditors thereon
FOR
2) Declaration of Dividend
Ord. To declare final dividend of 55% for FY11 and confirm the interim dividend of 20% paid in December 2010
FOR
3) Re-appointment of Director
Ord. To re-appoint RD Goyal, who retires by rotation
FOR
4) Re-appointment of Director
Ord. To re-appoint Apurva Chandra, who retires by rotation
FOR
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5) Re-appointment of a Director
Ord. To re-appoint Mahesh Shah, who retires by rotation
FOR
6)
To fix remuneration of Statutory Auditors
Ord. To fix remuneration of Rasool Singhal & Co. and ML Puri
FOR
7) Appointment of Additional Director
Spl.
To appoint S Venkatraman as Director, retiring by rotation, on such terms and conditions, remuneration and tenure as may be determined by the President of India from time to time
FOR
8) Appointment of Additional Director
Spl. To appoint Arun Agarwal as Director, retiring by rotation
FOR
9) Appointment of Additional Director
Spl.
To appoint PK Jain as Director, retiring by rotation, on such terms and conditions, remuneration and tenure as may be determined by the President of India from time to time
FOR
*Ord/Spl: Ordinary/Special resolution
Summary of the Board of Directors: Currently GAIL has 12 directors (refer table 3). This includes six whole time directors (including the chairman), one government nominees and five non-executive directors. After the AGM, the board will increase to 13 directors consisting six whole time directors (including the chairman), two government nominees and five non-executive directors. In terms of Clause 49 of the listing guidelines, 50% of the company’s board needs to be independent, if the company has an executive chairman. We find that GAIL is not in compliance with this. Average age of the Board of Directors is ~57 years. Only three Directors, viz, AQ Contractor (61), VD Gautam (65) and Mohan Sethi (64) are above 60 years. All three are independent. The average age of Executive Directors is ~55 years. RD Goel (executive director) and two independent directors (Apurva Chandra and Mahesh Shah), being eligible, have offered themselves for re-appointment. The appointment of S Venkatraman (executive director), Arun Agarwal (independent) and PK Jain (executive director) is subject to shareholders consent at the ensuing AGM on 7 September 2011. The Board has a 96% attendance for meetings conducted in FY11. All the Directors, excluding AQ Contractor (present in 6 out of 8) and S Bhargava (present in 7 out of 8), had full attendance for the board meetings conducted in the financial year 2010-11.
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Resolution and IIAS recommendations: Resolution 1: Consider and adopt the Financial statements for FY11 To consider and adopt the financial statements for the financial year 2011, Directors report, Auditors report, and the comments thereupon of Comptroller and Auditor General of India.
IIAS Recommends: FOR The auditor’s Rasool Singhal & Co. and ML Puri statement on the accounts for FY11 does not contain any qualification and thus the financial statements give a ‘true and fair’ view in conformity with the accounting principles generally accepted in India. The auditors mentions Rs 528.1 Cr worth dues pertaining to excise duty, custom duty, entry tax, sales tax and other taxes, which are pending on account of disputes. We believe the dues are not significant given the size of the operations (sales turnover of Rs 30,612 cr, net profit of Rs 3,561 cr) and the company’s net-worth of Rs.19,253 cr as at 31 March 2011. Resolution 2: Declaration of Dividend To declare final dividend of 55% (Rs 5.50 per share) for FY11 and confirm the interim dividend of 20% (Rs 2 per share) paid in December 2010 IIAS Recommends: FOR The payout ratio remains reasonable at 31.1% (35.4% in FY10), despite the high level of investments during the year. During FY11, net-cash from operations was Rs 3,077 cr while the company has spent Rs 4,632 cr towards fixed assets and Rs 509 cr towards investment in other companies. In FY11, borrowings have increased by Rs 830 cr to Rs 2,310 cr. Debt equity ratio remains comfortable at 0.1:1. We support the resolution. Table 2: Key statistics and ratios (standalone) (Rs in crore)
Particulars FY11 FY10
Profit after Tax 3,561 3,140
Interim Dividend 254 254
Proposed Dividend 698 698
Tax on Dividend 155 159
Total Distribution 1,107 1,110
Dividend payout ratio 31.1% 35.4%
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Net Cash from Operating activities 3,077 4,677
Net cash from Investing activities (4,729) (3,416)
Purchase of fixed assets (4,632) (3,570)
Sale of fixed assets 3 19
Investment in other companies (509) (336)
Loans & Advances to subsidiary 9 23
Interest received 99 227
Dividend received 301 221
Net cash from Financing activities (388) (546)
Cash & Bank balance 2,131 4,172
Loan funds 2,310 1,480
Net worth 19,253 16,799
ROE 18.5% 18.7%
Source: Company, IIAS Research
Resolution 3: Re-appointment of RD Goyal (Whole time Director) To re-appoint RD Goyal, who retires by rotation, and being eligible, offers himself for re-appointment IIAS Recommends: For RD Goyal is an Executive Director and has been on the board since 1 July 2009. He has attended all the
company’s board meeting in FY11.
RD Goyal, 57 is a Bachelor in Mechanical Engineering from MITS, Gwalior and a Master in Production
Engineering from University of Rourkee (now IIT - Rourkee). After joining GAIL in 1990, RD Goyal has held
several key positions in the company.
He is a Director in Ratnagiri Gas and Power Pvt Ltd. where he is also a member of the audit committee.
For FY11, he was paid total remuneration of Rs 41.8 lakhs including contribution to provident fund, gratuity,
perquisites, and other performance linked incentives. This is in line with the remuneration paid to the other
whole time Directors in FY11.
R D Goyal owns 300 equity shares of the company.
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Table 3: Details of the Board of Directors
Sl. No
Name of Director Director Type/
Designation on the Board
Independent Director
Age Occupation First Date of
Appointment as a Director
Meetings Attended in
FY11 (Total 8)
Directorships in Other Listed Companies
1. Bhuwan Chandra Tripathi (Mr.)
Executive Chairman & Managing Director
No 51 Chairman & Managing Director,
GAIL 06/07/2007 8 3
2. Arun Agarwal (Mr.) Non-Executive
Director Yes 51 Practicing Chartered Accountant 24/02/2011 Na ~ 2
3. Sudhir Bhargava (Mr.) Govt. nominee No 56 Government Service 15/03/2010 7 5
4. Aliasgar Qutub Contractor (Dr.)
Non-Executive Director
Yes 61 Head Dept Of Chemistry, IIT
Bombay 04/08/2008 6 1
5. Vinayshil Gautam (Dr.) Non-Executive
Director Yes 65 Professor, IIT Delhi 11/08/2009 8 4
6. Rameshwar Dayal Goyal (Mr.) Whole time Director No 57 Director: Projects, GAIL 01/07/2009 8 1
7. P.K. Jain (Mr.) Whole time Director No 56 Director: Finance, GAIL 01/03/2011 Na ^ 1
8. Shadi Lal Raina (Mr.) Whole time Director No 58 Director: HR, GAIL 19/08/2009 8 1
9. Ravi Mohan Sethi (Mr.) Non-Executive
Director Yes 64
Chairman & Managing Director, Stellar Ventures (P) Ltd, IAS (Retd.)
11/08/2009 8 1
10. Mahesh Shah (Mr.) Non-Executive
Director Yes 58 Corporate Advisor 11/08/2009 8 2
11. Prabhat Singh (Mr.) Whole time Director No 54 Director: Marketing, GAIL 24/02/2010 8 1
12. S. Venkatraman (Mr.) Whole time Director No 56 Director-BD, GAIL 25/09/2010 3* 1
13. Apurva Chandra (Mr) Govt. nominee Yes 46 Government Service 23/01/2009 Na nil
Source: Primedirectors.com, IIAS Research * Mr S Venkatraman appointed with effect from 25 Sep 2010 ^Mr P K Jain was appointed as whole time director with effect from 1 March 2011 ~Mr Arun Agarwal Was appointed as non-executive director with effect from 24 February 2011
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Resolution 4: Re-appointment of Apurva Chandra as Director (Government nominee) To re-appoint Apurva Chandra, who retires by rotation, and being eligible, offers himself for re-appointment IIAS Recommends: FOR
Apurva Chandra is a Joint Secretary in the Ministry of Petroleum and Natural Gas, Government of India. He is
an IAS officer from Maharashtra Cadre (1988). He has done Diploma in Business Finance from ICFAI, a
B.Tech (Civil Engineering) and M.Tech (Structural Engineering) from IIT, Delhi. Although the AGM notice talks
about one other directorship, Apurva Chandra has recently (effective 9 August 2011) resigned from the Board
of Petronet LNG.
Apurva Chandra has been nominated on the board by the Government of India. His nomination ended on 8
August 2011, and being eligible, has offered himself for reappointment. Apurva Chandra had 100% attendance
in board meeting conducted in FY11.
Note, the government nominees do not receive any remuneration from the company.
Apurva Chandra, 46, does not own any equity shares of the company.
Resolution 5: Re-appointment of Mahesh Shah as Director (Non-executive Director) To re-appoint Mahesh Shah, who retires by rotation, and being eligible, offers himself for re-appointment
IIAS Recommends: FOR Mahesh Shah, 58, is a qualified Chartered Accountant, Cost Accountant, Company Secretary and has a
degree in Law and Business Management.
Mahesh Shah had 100% attendance in board meeting conducted in FY11.
Mahesh Shah does not own any equity shares of the company. He is a director in three other companies, viz, Kitply Industries Ltd, Inter Corporate Financiers & Consultants Ltd and MSV Shares & Stock Brokers Ltd. Resolution 6: To fix remuneration of Statutory Auditors To fix remuneration of Rasool Singhal & Co. and ML Puri appointed by the Comptroller and Auditor General of India for FY11-12 IIAS Recommends: FOR
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Rasool Singhal & Co. has been the statutory auditors since FY10, whereas ML Puri have been appointed in FY11. The audit fees paid to the statutory auditors account for 70% of total fees in FY11 (81% in FY10). We recommend voting for the resolution. Table 4: Fees paid to auditor/s
Particulars FY 10 FY 11
Audit fees 0.62 0.65
Management services 0.02 0.10
Out of pocket expenses 0.12 0.18
Total payment to auditors 0.77 0.93
Audit fees to Total fees 81% 70%
Source: Company, IIAS Research
Resolution 7: Appointment of S Venkatraman as Director (Whole time Director) To appoint S Venkatraman, who retires by rotation, on such terms and conditions, remuneration and tenure as may be determined by the President of India from time to time IIAS Recommends: FOR S Venkatraman was appointed as Director (Business Development) with effect from 25 September 2010, till
the next AGM (7 September 2011).
S Venkatraman, 56, is in charge of GAIL’s business development, project development, petrochemical
operations, exploration & production and global ventures of the company.
He holds BSc (Physics) degree from University of Madras. He has completed Diploma in Instrumentation from
Madras Institute of Technology, Madras and thereafter Diploma in Management from All India Management
Association, New Delhi in 1989.
S Venkatraman owns 300 equity shares of the company.
S Venkatraman was appointed in Board of Director with effect from 25 September 2010 and three board
meeting has been conducted since then. He has attended all three meetings.
For the year he was paid total remuneration of Rs 16.9 lakhs including contribution to provident fund, gratuity,
perquisites, and other performance linked incentives.
GAIL is a public sector undertaking (PSU). Consequently the remuneration of its whole time Directors is
determined by the President of India, through Ministry of Petroleum and Natural Gas. We can expect this to be
reasonable.
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S Venkatraman also holds directorship position in seven other associate/subsidiary companies, viz, Green Gas Ltd, GAIL China Gas Global Energy Holdings Ltd, Brahmaputra Cracker & Polymer Ltd, Fayum Gas, Shell CNG, National Gas and ONGC Petro-additions Ltd. Resolution 8: Appointment of Arun Agarwal as Director (Non-executive Director) To appoint Arun Agarwal, who retires by rotation IIAS Recommends: FOR Arun Agarwal was appointed as an independent director with effect from 24 February 2011. His appointment is
to be confirmed at the ensuing Annual General Meeting on 7 September 2011.
Arun Agarwal, 51, is a Graduate in Commerce and a fellow member of the Institute of Chartered Accountants
of India. He has provided professional services in the field of audit, company law matters, income tax matters,
service tax and other fiscal laws to various public sector companies/banks.
There were no board meetings conducted in FY11 after Arun Agarwal’s appointment (24 February 2011) in
Board of Directors.
Arun Agarwal does not hold any equity shares of the company.
Arun Agarwal also holds directorship position in five other companies, viz, Shivang Helmets Pvt Ltd, Tauras
Portfolios Ltd, Interlink Portfolios Ltd (where he is also a member of the audit committee and the investor
grievance committee), Catalyst Media Pvt Ltd and State Bank of Patiala.
Resolution 9: Appointment of PK Jain as Director (Whole time Director) To appoint PK Jain, who retires by rotation, on such terms and conditions, remuneration and tenure as may be determined by the President of India from time to time IIAS Recommends: FOR PK Jain was appointed as Director (Finance) from 1 March 2011. His appointment is to be confirmed at the
ensuing Annual General Meeting on 7 September 2011.
PK Jain, 56, is a Chartered Accountant and an MBA in Finance from University of Hull, UK. He has over 33
years of experience in the area of finance and accounts.
There were no board meetings conducted in FY 11 since PK Jain’s appointment (1 March 2011) to the Board
of Directors.
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PK Jain holds 45 equity shares of the company.
PK Jain is a director in five other associate/subsidiary companies, viz, GAIL Gas Ltd, Brahmaputra Cracker &
Polymer Ltd, AIL China Gas Global Energy Holdings Ltd, Gail Global (Singapore) Pte Ltd and China Gas
Holdings Ltd. He is also a member of audit committee in GAIL Gas Ltd and Brahmaputra Cracker & Polymer
Ltd.
As mentioned earlier being a PSU the remuneration of GAIL’s whole time directors is determined by the
President of India, through Ministry of Petroleum and Natural Gas. We can expect this to be reasonable.
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