Streaming Efficiencies
Under Sanjeev Kumar’s leadership, Gujarat Gas, the country’s largest city gas distributor, has also become a study in successful reverse privatisation
TO ANYONE MEETING him for the first time, Sanjeev Kumar, Managing Director, Gujarat Gas Ltd (GGL), may come across as a soft-spoken academic. But this demeanour can be highly misleading. The impressive numbers clocked by the country’s largest city gas distribution (CGD) company tell an altogether different story. Under Kumar’s leadership, GGL reported `10,042.28 crore revenue from operations, with profit after tax of `1,275.5 crore (three-year CAGR of 63.58 per cent) in FY21. It is this that has made the 1998 batch IAS officer of the Gujarat cadre the winner in the Emerging Companies category of the BT-PwC India’s Best CEOs ranking.
The performance becomes even more credible once you realise that the company has successfully met several challenges since the March 2020 nationwide lockdown. “Gas demand fell by over 80 per cent within days due to disruption in economic activity. However, we believed that the effects of the pandemic were but a pause and the country would bounce back. As a result, we invested 40 per cent higher growth capex during the period,” says Kumar. Consequently, GGL was able to unveil a record 150 CNG stations in the previous fiscal, the highest by any CGD entity in India. Further, the company added more than 100,000 households to its customer base, and also fast-tracked the laying of more than 3,000 km of pipelines. The period witnessed commissioning a record number of new markets, with its CGD network getting rolled out in Rajasthan, Madhya Pradesh, Haryana and Punjab.
With the help of the LNG trading arm of Gujarat State Petroleum Corp. (GSPC), GGL strengthened its natural gas supplies by changing the portfolio mix through longterm deals at reasonably attractive prices to offset the increase in spot LNG prices. This helped them in providing natural gas to customers at competitive tariffs.
Biting the Bullet
But that’s not the end of the story. “When the LNG prices spiked, GGL increased the tariff for industrial consumers by 55 per cent. Nobody had thought that they would be able to push through such a steep increase. But they surprised everyone by doing that, putting to rest a lot of concerns around their pricing power,” says Harshvardhan Dole, Energy Analyst at financial services firm IIFL Securities.
On being asked how they were able to achieve that, Kumar smilingly remarks: “Our close engagement with large industrial consumers helped convince them of the necessity for a hike. We also managed to persuade them to draw lower quantities of gas to ensure a regular supply to small customers, which helped us in purchasing slightly lesser quantities of expensive LNG.”
This ability to move quickly on pricing-related deci
sions provides stability to the company’s margin profile. By the time the first wave of the Covid-19 pandemic ebbed, GGL became the first CGD in India to cross 10 million metric standard cubic metres per day (MMSCMD) gas sales volume to touch the record high volume of 12 MMSCMD. Similarly, CNG sales not only recovered sharply but jumped more than 25 per cent over the pre-pandemic level.
Aggressive Expansion Strategy
The company has charted out an aggressive expansion strategy as more regions are opened for CGD operations. It has set its sights on Ahmedabad district, which holds high growth potential due to the presence of a large number of industrial clusters. It recently commissioned 17 new markets, which were won through competitive bidding. It is also looking at expanding its CNG infrastructure at the same pace. It now plans to double capex to `1,000 crore from an average of `500 crore a year.
“Gujarat Gas is a successful example of reverse privatisation (it was earlier a private company owned by British Gas). All our processes are aligned with global best practices. In the recent past, we have introduced periodic review for all key performance indicators, which are now helping us periodically monitor business progress,” says Kumar. In the past few years, the central government’s efforts at extending the gas grid to more cities have resulted in the entry of a large number of public and private sector entities into the CGD business. So, will enhanced competition impact GGL’s future growth? “There is no direct impact of this on us as a company since India is a huge market, with enough space for everyone to grow. Moreover, only a fraction of the country has been covered with CGD networks so far. The way the business is expanding, I am confident that we will continue to thrive,” asserts Kumar.