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Rising Demand, Lower Prices Than Auto Fuels Drive City Gas Firms’ Q3 Earnings

Profit and revenue of India’s largest city gas distributors rose in the quarter ended December. Here’s why.

A gauge wheel sits on pipework on the European Gas Pipeline Link Radeland 2 compressor station. Photographer: Krisztian Bocsi/Bloomberg
A gauge wheel sits on pipework on the European Gas Pipeline Link Radeland 2 compressor station. Photographer: Krisztian Bocsi/Bloomberg

Profit and revenue of India’s largest city gas distributors rose in the quarter ended December, aided by rising demand and fall in prices of the cleaner fuel, and expansion of their networks.

Both the metrics and operating profit of Indraprastha Gas Ltd., Mahanagar Gas Ltd. and Gujarat Gas Ltd. rose sequentially as well as over the preceding year on an aggregate basis, according to data compiled by BloombergQuint from exchange filings. The companies’ collective Ebitda margin rose to 29% from 20.8% a year ago.

India seeks to push the adoption of natural gas as a household, vehicular and industrial fuel as it seeks to curb emissions, with many cities in its north figuring among the world’s most polluted. The government has proposed to add gas networks to 100 districts in three years to increase its consumption from 6% at present to 15% by 2030, and has notified regulations that would support infrastructure in the sector.

Record prices of petrol and diesel, largely because of higher taxes, too, has aided demand for natural gas-powered vehicles.

Here’s how the three companies performed in the quarter ended December:

Rising Demand, Lower Prices Than Auto Fuels Drive City Gas Firms’ Q3 Earnings

Gujarat Gas

  • The Ahmedabad-based gas distributor beat Bloomberg’s estimates for revenue, operating and net profit in the third quarter. While revenue grew on a yearly and sequential basis, Ebitda and net profit rose over a year ago, but fell sequentially.
  • A 12% year-on-year decline in operating expenditure and 16% year-on-year fall in gas costs, too, helped.
  • Volumes grew 22.9% year-on-year to 11.45 million metric standard cubic metres per day, led by growth across segments. Sequentially, it rose 16.2%.

As more industrial units switched from propane to liquefied natural gas, volumes in the industrial segment have risen above pre-Covid-19 levels, whereas compressed natural gas segment volumes have fully recovered, Dolat Capital said in a recent report.

According to Centrum Broking, a continued expansion in the Morbi ceramic cluster in Gujarat and associated areas, and the National Green Tribunal order boosting the fuel’s usage will drive Gujarat Gas’ outperformance over the next two-three years.

Mahanagar Gas

  • The Mumbai-based company’s profit and revenue beat Bloomberg estimates during the quarter ended December. Revenue rose sequentially but fell over the preceding year. Operating and net profit increased on a yearly and sequential basis.
  • Overall volume declined 9% year-on-year, pulled down by a 15.3% fall in its CNG unit and 9% fall in industrial segment. Pressurised natural gas volumes grew 7.2% over a year ago.
  • Operating margin rose 1,276 basis points year-on-year to 47.5% in the third quarter as gas costs fell. Margin improved as the company didn’t pass on the full benefit of domestic gas price cut to consumers. It hiked CNG and residential PNG prices on Feb. 8, which is expected to boost margin in the next quarter.

“Introduction of new CNG buses by the state government, new three-wheelers along with geographical expansion to Raigad and Karjat will support volumes,” Prabhudas Lilladher said in a report. “Also, government’s push for PNG’s domestic connections will add to volume traction.”

ICICI Securities said, “The lofty margins are likely to continue as regulations allowing competition will take time to implement and may fail to have a significant impact as, in its present form and interpretation, limits OMCs’ ability to compete.”

Indraprastha Gas

  • The Delhi-based company’s operating and net profit beat estimates, but revenue lagged.
  • Revenue fell on a 6.5% year-on-year decline in total volumes. That came as CNG volumes fell 9% and third-party volumes declined 14% over a year ago.
  • Ebitda margin, measured in terms of standard cubic meter, rose to Rs 8.7 per scm from Rs 6.4 per scm a year ago amid steady pricing power and falling domestic gas costs.

Indraprastha Gas’ volume growth will improve due to geographical expansion and addition of new buses and taxis, according to Prabhudas Lilladher. “In addition, shift to private vehicle ownership post-Covid pandemic will drive CNG volumes. Rising pollution concerns and ban on competing industrial fuel is a major positive for the company.”