Industrial demand to drive Gujarat Gas volumes

Recent price hikes and incremental volumes from new regions are other positives

Rising demand from industrial users for piped natural gas (PNG) augurs well for Gujarat Gas. About 72 per cent of the company’s sales are to the industrial segment. The corresponding figures are 12 per cent for Indraprastha Gas (IGL) and 14 per cent for Mahanagar Gas (MGL). Hence it is bestplaced to benefit from higher industrial volumes. Falling liquefied natural gas (LNG) prices globally will expedite the shift towards the fuel from other coalbased fuels, analysts say. Elara Capital analysts expect industrial volumes of PNG could double to about 10 million metric standard cubic metres per day (mmscmd) by FY22 from 4.5 mmscmd in FY16 and aid the prospects of the three city gas distribution companies.

Gujarat Gas has witnessed rising volumes in Morbi (a city in Gujarat), particularly from ceramic plants. The Morbi industrial segment has added volumes of about 0.5 mmscmd to the 5.3 mmscmd volumes reported by Gujarat Gas in the December quarter. This has prompted a host of brokerages to raise their volumes as well as revenue estimates for the company for FY18 by 7-9 per cent. Factoring in the recent price hikes by Gujarat Gas, analysts have upped their earnings estimates for the company by 10-12 per cent.

In this backdrop, it is not surprising that the Gujarat Gas scrip has surged about 19 per cent in the past one month — racing ahead of peers IGL (down 3 per cent) and MGL (up 1.3 per cent). It touched a new 52-week high of ~749.7 on Thursday. The Gujarat Gas scrip had lagged these stocks in the past one year as industrial volumes have started improving very recently. The IGL and MGL scrips had risen on the growing adoption of compressed natural gas (CNG) as an auto fuel and hence have had a strong run in the past one year.

Going forward, Gujarat Gas is also entering new geographies like Silvassa, Kutch (W), Botad, Dahej, Thane and Anand. This will act as an additional growth driver for the company. Analysts say each of these places could add volumes of 0.3-0.5 mmscmd. In this backdrop, most analysts are positive on the company with some expecting returns of 15-17 per cent even from the current levels of ~735.