Stellar Q4 performance, expanding network make Gujarat Gas analysts’ favourite
The fall in gas prices and expanding distribution network will build margins and volumes respectively.
Petronet LNG and Qatar’s RasGas’ new deal, which allows the former to purchase gas from the latter at half the cost earlier agreed upon, is will contribute to subdued domestic gas prices in the coming quarters. Government reducing the administered price of domestic gas by 20% will further contribute to lower prices. Since the industrial users in Gujarat are price-sensitive, this price fall is expected to revive the industrial demand and, thereby, benefit Gujarat Gas.
Gujarat Gas has already benefitted from the fall in natural gas prices in the form of higher margins. Analysts are hopeful that Gujarat Gas should be able to maintain margins at higher levels in the coming quarters as well. Though the company will try to increase sales volume by passing on most of the lower cost to the consumers, it should continue to strike a balance between margin and volume. However, margin may come under pressure again if the cost of alternative fuels gets cheaper.
While the industrial consumers are price-sensitive, retail consumers are not. And that is why Gujarat Gas has decided to increase its city gas distribution (CGD) presence to more areas in Gujarat and also in the adjoining districts of Maharashtra. With five new areas, Gujarat Gas will have a CGD network in 19 districts of Gujarat, Dadra and Nagar Haveli, Thane and Palghar districts in Maharashtra. The penetration of compressed natural gas (CNG) and piped natural gas (PNG) in these new areas is low and, therefore, they should generate good retail demand. Since these new areas are in the industrialised belt, it should help boost Gujarat Gas’ industry volumes further.
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