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Gujarat Gas: Seeking more supply - Views on News from Equitymaster

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Gujarat Gas: Seeking more supply
Mar 31, 2009

We recently attended the Analyst meet held by Gujarat Gas. Following are the key extracts from the event. Volumes: Gujarat Gas primarily operates in Surat, Ankleshwar and Bharuch in South Gujarat. It registered sales of 1,089 m standard cubic meters (mmscm) in CY08, 9% lower than 1,196 mmscm in CY07. The decline was mainly on account of lower availability of gas from its major source from the Panna Mutka Tapti (PMT) fields. However, the company expects robust growth over the next 4 to 5 years on the back of expansion into other areas within Gujarat. For this purpose, it plans to utilise the Gujarat State Petronet transmission pipeline already in place.

Source Mix: 76% of Gujarat Gasí source mix by volume comes from the PMT fields. Barring the supply from GAIL, the prices are market determined. PMT gas supply was affected during the year as GAIL replaced the PMT JV (BG, RIL and ONGC) as supplier. The company expects to use a portion of the 5 mmscm of gas per day allocated to city gas distribution companies from RILís KG basin assets.

Source Mix
Source mmscm per day
PMT 832 2.3
Cairn 120 0.3
Niko 88 0.2
GAIL 55 0.2
Total 1,095 3.0
Source: Company

Sales Mix: 72% of Gujarat Gasí sales mix by volume comes from retail industrial customers. A large chunk of them are textile manufacturers in South Gujarat. Chemicals and glass & ceramics industries are the other key users. The segment has a large number of low volume, high margin customers. Historically, migration to competitors has been under 10%. Their gas off take tends to be steady because of the take-or- pay clause in their contracts. The company passes through any volatility in gas cost. They also furnish security deposits or bank guarantees.

Sales Mix
Sector mmscm per day
Retail 784 2.1
Bulk 142 0.4
PNG 76 0.2
CNG 87 0.2
Total 1,089 3.0
Source: Company

Capex: Gujarat Gasí capex declined from Rs 1,035 m in CY07 to Rs 988 m in CY08. 80% of the expenditure for the year went towards network maintenance and expansion. The company is waiting for approval from the petroleum board in the districts of Surat and Bharuch before incurring further capex. It may be noted that it has already received authorisation from the oil ministry. Moreover, the petroleum board has granted permission for construction outside city limits in all areas of operation. The company plans to incur a capex of Rs 1.75 bn each in CY09 and CY10.

What to expect?
At the current price of Rs 274, the stock is trading at a multiple of 7 times our estimated CY10 earnings. We shall soon update our view on the company.

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May 26, 2015 (Close)

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