Why Analysts Prefer Gujarat Gas Over Other City Gas Distributors
Analysts love this city gas distributor. Here’s why...
Gujarat Gas Ltd. has outperformed peers in the quarter ended September as the nation’s largest city gas distributor reported its highest volumes, aided by increased offtake. That has made it analysts’ favourite who expect the stock to rise the most among peers over the next 12 months.
The company’s total volumes grew 39 percent year-on-year to 9.3 million standard cubic meters per day—its highest ever—on rising demand from ceramic tilemakers in Gujarat. Morbi, India’s largest ceramic manufacturing hub, switched to liquefied natural gas after the National Green Tribunal ordered a shutdown of coal-based units. That boosted volumes for the city gas distributor.
Delhi-based Indraprastha Gas Ltd. reported double-digit growth in volumes for the fourteenth straight quarter. That came mainly on the back of a strong performance across segments.
On the other hand, volumes of Mahanagar Gas Ltd. rose at the slowest pace in at least three and a half years. A temporary disruption of gas supply from Oil and Natural Gas Corporation Ltd.’s Uran facility—first, due to a technical snag in mid-August and second, a fire in early September—led to slow volume growth for the Mumbai-based company.
Still, Mahanagar Gas remained the most profitable supplier of piped natural gas. Its operating profit per unit increased 19 percent over the last year at Rs 9.9 per standard cubic meter, as operating expenses and raw material costs fell.
Growth in Ebitda per unit of Indraprastha Gas was the lowest among peers at 14.2 percent. Gujarat Gas’ unit Ebitda rose the most, at 65 percent over the last year, as prices of liquified natural gas fell.
Analysts’ View
Analysts expect better growth prospects for all city gas distributors on the back of rising gas penetration in India. But they prefer Gujarat Gas over peers because of its lower valuations, expected higher and stable volume growth and margin, along with strong pricing power.
A likely fall in the prices of LNG gas due to oversupply in the global markets will boost Gujarat Gas’ margins. Also, winning city gas distribution rights in new geographical areas such as Punjab, Haryana and Madhya Pradesh will aid its volumes.
Gujarat Gas is the only supplier of the clean fuel whose earnings per share is expected to double in the ongoing financial year on the back of volume growth and lower tax rates. It’s the only listed city gas distributor to have zero ‘sell’ ratings, while 89 percent of the 27 analysts recommend a ‘buy’.