Gujarat Gas — Q2 FY25 earnings call

Call held 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

  • 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

  • Reduction in APM Gas Allocation

Key financials

  1. Revenue from Operations ₹3,949 Cr -1.1%YoY
  2. EBITDA ₹553 Cr +5.1%YoY
  3. Profit Before Tax ₹415 Cr +3.5%YoY
  4. EBITDA per SCMD ₹6.86 +11.7%YoY
  5. Total Sales Volume 8.75 mmscmd -6.1%YoY

What they filed

Q1 FY27: revenue up 63.1%, net profit up 84.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue3,782 4,153 4,102 5,851 3,780 −0%3,658 −12%5,792 +41%9,545 +63%
EBITDA514 380 450 837 447 −13%447 +18%609 +35%1,381 +65%
Net profit309 221 288 547 280 −9%267 +21%152 −47%1,007 +84%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

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 New Connections₹21.91 lakh Total Customers

Guidance & targets

Capex

  • Annual Capex Capex · FY25 · High confidence ₹800-1,000 crores
    No, we'll be incurring the capex will be around INR 800 crores to INR 1,000 crores.

    — Management

Volume

  • Morbi Sales Volume Volume · Q3 FY25 · Medium confidence 3.5 to 4 mmscmd

    From 2.86 mmscmd today

    I think in quarter 3, we are looking at a growth of around 3.5 to 4 mmscmd.

    — Management

  • Overall Volume Growth Volume · FY25 · Medium confidence 5% to 7%
    I think last time also, we gave a guidance of around 5 to 7 percentage. We stick to that guidance, subject to the price volatility and the demand increase.

    — Management

Margin

  • EBITDA Margin Band Margin · FY25-26 · Medium confidence 5% to 6%

    Previously 4.5% to 5.5% → 5% to 6%

    I think our EBITDA margins would be in the range of 5% to 6% now going forward.

    — Management

Risks & concerns

  • Reduction in APM Gas Allocation

    high

    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

  • Propane Price Volatility

    medium

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

    Management acknowledged

  • Regulatory Uncertainty (Common Carrier)

    medium

    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

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

2 direct
APM Gas Allocation Cuts and Pricing Strategy Direct
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

Propane vs. PNG Competition in Morbi Direct
Propane prices have actually gone up. The differential is now INR 1 to INR 1.5 per SCM... we expect to gain a share out of propane consuming customers.

Explains the mechanism for volume recovery in the industrial segment; as propane's discount narrows, customers shift back to PNG for logistics and credit benefits.

Asked by S. Ramesh, Nirmal Bang Equities

GSPC Merger and Financial Transparency Partial
GSPC management is cognizant of the fact that investors are curious... they will take a conscious call on that, and we'll keep investors informed about major events.

Highlights investor concern regarding the lack of visibility into GSPC's financials, which will become part of the merged entity.

Asked by Tarang Agrawal, Old Bridge Capital

2 min read 5 chapters

Detailed narrative

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.

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.

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.

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.

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.

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