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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.

, ET Bureau|
May 30, 2016, 08.00 AM IST
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The fall in gas prices and expanding distribution network will build margins and volumes respectively.
The fall in gas prices and expanding distribution network will build margins and volumes respectively.
Gujarat Gas has beaten the Street expectations with its fourth quarter numbers. Though its revenue came down 7% compared to the previous quarter, due to the fall in natural gas prices, the company was able to maintain its sales volume. More importantly, a 30% quarter-on-quarter (q-o-q) improvement in margin helped Gujarat Gas report a 41% qo-q jump in EBITDA (earnings before interest, taxes, depreciation and amortisation). And, despite an exceptional expense of Rs 25.62 crore in this quarter, the company’s net profit zoomed 189% q-o-q to Rs 58.08 crore. This exceptional expense came in the form of stamp duty charges and other expenses related to the amalgamation of Gujarat Gas Company and GSPC Gas Company.

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.
Stellar Q4 performance, expanding network make Gujarat Gas analysts’ favourite 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. Stellar Q4 performance, expanding network make Gujarat Gas analysts’ favourite
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. Stellar Q4 performance, expanding network make Gujarat Gas analysts’ favourite
Selection Methodology: We pick the stock that has shown the maximum increase in ‘consensus analyst rating’ in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts. You can see similar consensus analyst rating changes during the past week in the ETW 50 table.

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