Gujarat Gas stock may rise by 10% by November
Gujarat Gas Limited is India’s largest City Gas Distribution player with presence across 23 districts in Gujarat, Union Territory of Dadra & Nagar Haveli and Thane Geographical Area, which includes Palghar district of Maharashtra. In the tenth bidding round announced by PNGRB, the company has won six geographical areas comprising of 17 cities in the state of Punjab, Haryana, Madhya Pradesh and Rajasthan, making Gujarat Gas a pan India company. The company has India’s largest customer base in residential, commercial and industrial segments. The company wants to reach out to every possible natural gas user in its expanded geographical area and achieve efficiencies and effectively manage the transformational changes in the sector. This major gain in productivity would benefit all the key stakeholders i.e. customers and shareholders. The company has more than 24,000 km of gas pipeline network. It has more than 400 CNG stations and distributes close to 10 mmscmd (as on 31/03/2020) of natural gas to over 14,50,000 households, approximately 2 lakh CNG vehicles (fueled per day) and to more than 3700 industrial customers. The Q1FY21 financial performance was affected due to Covid-related disruptions as there was substantial demand destruction with volumes dipping drastically in both the industrial and CNG segment. The company reported a steep decline in revenue, profit and margins overall. There has been a small recovery since May after business and commerce started to open following the lockdown. The June quarter of 2020 financial results were disappointing with net sales at Rs 1,082 crore, down 58%, net profit at Rs 58 crore, down 75% and EBIDA at Rs 200, down 59% year-on-year respectively. Gujarat Gas is expected to post relatively higher volume sales in Q2 as majority of its revenue comprises of industrial demand which is a segment that is expected to recover earlier than CNG. Analysts tracking the sector are seeing a sharp recovery in many industrial units of Gujarat such as ceramic units, pharmaceutical companies and chemical and fertilisers players during the month of August and September. There has been a blanket ban on polluting fuels such as coal gasifiers which will benefit volume uptick for Gujarat Gas in the coming months. In case of CNG where volumes will be lower and slower during these pandemic times, any downward revision of gas prices and high retail prices of petrol and diesel makes the economics of CNG favourable and should negate the impact of lower demand to a certain extent. Moreover, Gujarat Gas has passed only a small portion of this revision in gas prices to its end consumers. The Gujarat Gas stock is quoting at Rs 295 and analysts and brokers are expecting it to jump by 10% in the next three months’ time frame by November this year.