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    Gujarat Gas

    GUJGASLTDNeutral
    Oil, Gas & Consumable Fuels·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

    8

    • 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

    2

    • APM Gas Allocation Cuts

    • Propane Price Competition

    What Changed3

    vs Q4 FY25

    Tone shiftGood → NeutralGuidance items5 → 4 (-1)Risks discussed3 → 4 (+1)

    Key financials

    Single quarter

    05 metrics
    1. 01Revenue₹4,333 Cr+6.1%YoY
    2. 02EBITDA₹439 Cr+3.5%YoY
    3. 03PAT₹222 Cr+0.9%YoY
    4. 04EBITDA Margin per SCM₹5.04+0.2%YoY
    5. 05Total Volume9.73 mmscmd+5%YoY

    Segment breakdown

    • Industrial5.45 mmscmd63.6%
    • CNG3.12 mmscmd36.4%
    Donut· Share of Sales Volume

    Guidance & targets

    4
    CategoryTargetPriority
    Capex
    Planned Capex
    ₹1,000 crores
    		High
    Margin
    EBITDA margin guidance per SCM
    ₹4.5 to ₹5.5
    		Medium
    Volume
    Morbi Volume Outlook
    3 mmscmd
    		Medium
    Capacity
    CNG Dealer Agreements (FDODO)
    100+
    		High

    Risks & concerns

    6
    RiskSeverity

    APM Gas Allocation Cuts

    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

    high

    Propane Price Competition

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

    high

    Spot LNG Price Volatility

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

    medium

    Contract Expirations

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

    medium

    Areas of Evasion(2)

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

    Q&A highlights

    3

    “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

    2 min read5 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    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.