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    Gujarat Gas

    GUJGASLTDGood
    Oil, Gas & Consumable Fuels·7 Nov 2024
    Management Summary

    Gujarat Gas delivered a resilient performance in Q2 FY25, characterized by strong margin expansion despite a dip in total volumes. The company is successfully navigating a sharp reduction in low-cost APM gas allocation by sourcing 'new well gas' and evaluating price hikes in the CNG segment. While industrial volumes in Morbi faced headwinds from propane competition and seasonal factors, management expects a significant recovery in Q3, supported by aggressive infrastructure expansion and a growing footprint outside Gujarat.

    Highlights

    7

    • EBITDA increased by 5% YoY to ₹553 crores, with EBITDA per SCMD improving to ₹6.86 from ₹6.14.

    • CNG sales volumes grew 12% YoY to 2.93 mmscmd, driven by a 25% surge in sales outside Gujarat.

    • Industrial volumes declined to 4.91 mmscmd from 5.86 mmscmd YoY, impacted by Janmashtami festivals and propane competition.

    • APM gas allocation for CNG/Domestic segments has been cut to ~50%, down from 74% in the previous quarter.

    • Management raised EBITDA margin guidance to 5-6% (from 4.5-5.5%) due to a better sales mix.

    • Capex for H1 FY25 stood at ₹330 crores, with a full-year target of ₹800-1,000 crores.

    • Morbi volumes are expected to recover to 3.5-4 mmscmd in Q3 FY25 as the price gap with propane narrows.

    Concerns

    1

    • Reduction in APM Gas Allocation

    What Changed2

    vs Q3 FY25

    Tone shiftNeutral → GoodRisks discussed4 → 3 (-1)

    Key financials

    Single quarter

    05 metrics
    1. 01Revenue from Operations₹3,949 Cr-1.1%YoY
    2. 02EBITDA₹553 Cr+5.1%YoY
    3. 03Profit Before Tax₹415 Cr+3.5%YoY
    4. 04EBITDA per SCMD₹6.86+11.7%YoY
    5. 05Total Sales Volume8.75 mmscmd-6.1%YoY

    Segment breakdown

    Industrial
    4.91 mmscmd Sales Volume2.86 mmscmd Morbi Volume2.05 mmscmd Non-Morbi Volume
    CNG
    2.93 mmscmd Sales Volume12% Volume Growth
    Domestic
    38,500 count New Connections21.91 lakhs Total Customers
    List

    Guidance & targets

    4
    CategoryTargetPriority
    Capex
    Annual Capex
    ₹800-1,000 crores
    		High
    Volume
    Morbi Sales Volume
    3.5 to 4 mmscmd
    		Medium
    Volume
    Overall Volume Growth
    5% to 7%
    		Medium
    Margin
    EBITDA Margin Band
    5% to 6%
    		Medium

    Risks & concerns

    5
    RiskSeverity

    Reduction in APM Gas Allocation

    Allocation for priority sectors (CNG/Domestic) has dropped from ~100% to ~50%, forcing the use of more expensive 'new well gas' or spot LNG. — Both acknowledged

    high

    Propane Price Volatility

    Industrial volumes in Morbi are highly sensitive to the price differential between PNG and Propane. — Management acknowledged

    medium

    Regulatory Uncertainty (Common Carrier)

    PNGRB's move to declare 20 GAs as common carriers could impact exclusivity, though GGL currently has a stay order from the Delhi High Court. — Analyst acknowledged

    medium

    Areas of Evasion(2)

    • Specific financials of GSPC (unlisted parent entity)
    • Exact volume impact of the 20 GAs under common carrier review

    Q&A highlights

    3

    “Yes, we are evaluating options to increase the CNG prices in near future to basically offset the increased cost of gas procurement.”

    Confirms that the company intends to pass on the higher costs of 'new well gas' (replacing cheap APM gas) to consumers to protect margins.

    asked by Probal Sen, ICICI Securities

    2 min read5 chapters

    Detailed Narrative

    01

    CNG Segment Leads Growth Strategy

    The CNG segment remains the primary growth engine, with volumes increasing 12% YoY to 2.93 mmscmd. Growth was particularly strong outside Gujarat, surging 25% YoY. Management highlighted that CNG maintains a significant price advantage, being 47% cheaper than petrol and 15% cheaper than diesel, providing ample headroom for potential price hikes to offset rising gas costs.

    02

    Navigating the APM Gas Allocation Cliff

    A critical development is the reduction of APM gas allocation to approximately 50%, down from nearly 100% two years ago. Management is mitigating this by sourcing 'new well gas' (HPHT) priced at roughly 12% of crude (~$9.6/MMBtu) and spot LNG. While this increases procurement costs, the company is actively evaluating price increases in the CNG segment to maintain profitability.

    03

    Industrial Recovery and Propane Dynamics

    Industrial volumes were soft at 4.91 mmscmd, but management expects a rebound in Q3 FY25 to 3.5-4 mmscmd in the Morbi region alone. The price differential between PNG (₹44.7/SCM) and Propane (₹43.6/SCM) has narrowed to roughly ₹1.1-1.5, making PNG attractive when considering logistics, risk, and the 20-day credit period offered by Gujarat Gas compared to advance payments required for propane.

    04

    Infrastructure and FDODO Scheme Progress

    The company continues its aggressive infrastructure push, adding 9 CNG stations in Q2 to reach a total of 820. Under the new FDODO (Franchisee-Driven) scheme, 125 locations have been accepted by applicants, with construction slated to begin in December 2024. This capital-light model is expected to accelerate the expansion of the CNG network over the next 12 months.

    05

    Strategic Merger and Synergy Outlook

    The proposed scheme of arrangement involving the GSPC Group is progressing through regulatory channels, with clearance from stock exchanges expected in November 2024. Management emphasized that the merger will eliminate layered structures, promote business synergies, and unlock value, although they remained cautious about sharing specific GSPC financial data until the merger is finalized.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.