Gujarat Gas — Q3 FY25 earnings call

Call held 7 Feb 2025

Management summary

Gujarat Gas delivered a resilient performance in Q3 FY25, characterized by record-high CNG volumes and a recovery in Morbi industrial demand. However, the company faces significant headwinds from a 45% shortfall in low-cost APM gas allocation and intense competition from propane in the industrial segment. While infrastructure expansion remains aggressive with a ₹1,000 crore capex plan for FY26, management has proactively lowered margin guidance to reflect higher sourcing costs.

Highlights

  • Revenue from operations stood at ₹4,333 crores, up 6.1% YoY from ₹4,084 crores.

  • Profit After Tax (PAT) reported at ₹222 crores, a marginal increase from ₹220 crores YoY.

  • EBITDA for the quarter was ₹439 crores compared to ₹424 crores in Q3 FY24.

  • EBITDA margin per SCM stood at ₹5.04, nearly flat compared to ₹5.03 YoY.

  • CNG sales reached an all-time high of 3.12 mmscmd, growing 12% annually.

  • Industrial sales volume was 5.45 mmscmd, a slight decrease of 1% YoY due to festive shutdowns.

  • Morbi volumes recovered to 3.35 mmscmd from 2.86 mmscmd in Q2 FY25.

  • Management revised EBITDA margin guidance downwards to ₹4.5 - ₹5.5 per SCM due to APM gas allocation cuts.

Concerns

  • APM Gas Allocation Cuts

  • Propane Price Competition

Key financials

  1. Revenue ₹4,333 Cr +6.1%YoY
  2. EBITDA ₹439 Cr +3.5%YoY
  3. PAT ₹222 Cr +0.9%YoY
  4. EBITDA Margin per SCM ₹5.04 +0.2%YoY
  5. Total Volume 9.73 mmscmd +5%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

Share of Sales Volume
8.57 mmscmd Total
  • Industrial 5.45 mmscmd 63.6%
  • CNG 3.12 mmscmd 36.4%

Guidance & targets

Capex

  • Planned Capex Capex · FY26 · High confidence ₹1,000 crores
    Yes, we are planning close to INR1,000 crores, not less than INR1,000 crores.

    — Rajesh Sivadasan, CFO

Margin

  • EBITDA margin guidance per SCM Margin · FY25 · Medium confidence ₹4.5 to ₹5.5

    Previously ₹5 to ₹6 → ₹4.5 to ₹5.5

    No. We will be revising it to INR4.5 to INR5.5, especially in light of the APM gas reduction.

    — Management

Volume

  • Morbi Volume Outlook Volume · Q4 FY25 · Medium confidence 3 mmscmd

    From 3.35 mmscmd today

    Hence, it will be around 3 mmscmd now going forward because of the price differential, which has increased, the offtake has reduced now.

    — Management

Capacity

  • CNG Dealer Agreements (FDODO) Capacity · Q4 FY25 · High confidence 100+

    From 50 today

    And we are in the process of signing, at least we'll cross 100 in this quarter.

    — Management

Risks & concerns

  • APM Gas Allocation Cuts

    high

    A 45% shortfall in APM allocation forced the company to source more expensive gas from spot and HPHT sources, leading to a downward revision in margin guidance.

    Management acknowledged

  • Propane Price Competition

    high

    Propane is currently ₹4 cheaper than natural gas in the Morbi region, threatening industrial volume growth as dual-fuel customers switch.

    Both acknowledged

  • Spot LNG Price Volatility

    medium

    Spot LNG prices increased by more than 20% since September 2024, impacting sourcing costs for industrial segments.

    Management acknowledged

  • Contract Expirations

    medium

    Reliance contract expired in Dec 2024; Petronet and Shell contracts expire in 2025, creating uncertainty in long-term sourcing costs.

    Analyst acknowledged

Areas of evasion (2)

  • Segmental EBITDA breakups (CNG vs PNG)
  • Specific details on new long-term contract pricing

Q&A highlights

2 direct
APM Shortfall and Sourcing Costs Direct
See, the 45% is domestic and CNG, both put together, the shortfall is 45 percentage... it will be around 45% itself, maybe at 47% or 48% maybe [in Q4].

Confirms that the reduction in low-cost domestic gas allocation is a structural headwind that will persist into the next quarter, impacting margins.

Asked by Probal Sen, ICICI Securities

Propane Competition in Morbi Partial
The delta has increased with respect to propane and gas... Hence, it will be around 3 mmscmd now going forward because of the price differential.

Highlights the vulnerability of industrial volumes to propane, which is currently ₹4/SCM cheaper than natural gas, forcing a lower volume outlook for the Morbi cluster.

Asked by Santanu Saikia, Indianpetroplus

GSPC Merger and Sourcing Strategy Direct
GSPC is the sourcing partner for Gujarat Gas, they are in already negotiations with for long-term agreements with respect to replacing those volumes.

Reveals that the company is actively renegotiating long-term contracts (as Reliance and Petronet contracts expire) to mitigate spot price volatility.

Asked by Vivekanand S., Ambit Capital

2 min read 5 chapters

Detailed narrative

CNG Segment Hits Record Highs

The CNG segment emerged as a primary growth driver, reaching an all-time high sales volume of 3.12 mmscmd in Q3 FY25. This represents a 12% annual growth across all regions, with particularly strong performance outside Gujarat where sales surged by 26% YoY. Management highlighted that CNG maintains a significant price advantage, being 46% cheaper than petrol and 15% cheaper than diesel, which continues to drive adoption despite recent price hikes of ₹3 per kg.

Industrial Volume Headwinds in Morbi

While Morbi volumes recovered to 3.35 mmscmd in Q3 from 2.86 mmscmd in Q2, management warned of a slowdown to approximately 3 mmscmd in the near term. The primary challenge is a ₹4 per SCM price disadvantage compared to propane, which has seen its landed price drop to ₹43 compared to natural gas at ₹47. Despite this, management noted that many ceramic plants are continuous process operations that require a mix of fuels, preventing a total switchover to propane.

APM Allocation Crisis and Margin Revision

The company faced a structural shift in its cost base due to a 45% reduction in APM gas allocation during October and November 2024. This shortfall was bridged using more expensive New Well Gas, HPHT gas from Reliance, and spot LNG. Consequently, management lowered its sustainable EBITDA margin guidance to ₹4.5 - ₹5.5 per SCM, down from the previous ₹5 - ₹6 range, to reflect the higher blended cost of gas for the regulated CNG and domestic segments.

Aggressive Infrastructure and Capex Roadmap

Gujarat Gas is maintaining its aggressive expansion strategy, investing ₹213 crores in Q3 and planning a minimum capex of ₹1,000 crores for FY26. The focus is on developing new geographical areas like Ahmedabad Rural, Dahej, and Thane, and expanding the pipeline network which currently exceeds 42,000 km. The company is also pivoting toward an asset-light 'FDODO' model for CNG stations, having signed over 50 dealer agreements with a target to cross 100 in the current quarter.

Strategic Merger and Sourcing Realignment

The proposed merger with GSPC Group companies is progressing, with the company receiving 'no objection' from BSE and NSE and planning to file with the MCA shortly. This merger is expected to eliminate layered structures and promote sourcing synergies. As major long-term contracts with Reliance and Petronet expire or approach renewal, management is negotiating new agreements potentially linked to a blend of Brent and Henry Hub to stabilize long-term sourcing costs.

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