City gas distribution (CGD) companies such as Indraprastha Gas Ltd (IGL), Mahanagar Gas Ltd (MGL) and Gujarat Gas Ltd have seen their stock prices decline 4-11% in August after the June quarter earnings failed to lift investor confidence.
Their lower-than-expected volumes reported during Q1 dampened sentiments and analysts are watchful after slight rise in spot gas prices.
Earnings of CGD companies in Q1 were a mixed bag. While IGL and MGL saw a sequential margin improvement, Gujarat Gas saw a decline. MGL’s Ebitda per standard cubic meter (scm) of gas at ₹16.80 improved from ₹9.10 in the year ago quarter, and ₹12.80 in the previous quarter. IGL Ebitda per scm, at ₹8.60 also improved from ₹6.30 in the previous quarter, but remained flat on a year-on-year (y-o-y) basis. However, Gujarat Gas’s Ebitda per scm at ₹4.60 was lower than ₹6.80 in the year-ago quarter, and ₹7.00 in the previous quarter.
Analysts at Anand Rathi research said Gujarat Gas’s gross margin fell sequentially as prices were cut at Morbi (industrial cluster in Gujarat) to compete with propane. The fall in propane prices had meant some industrial gas customers switched away from piped natural gas usage to propane. The rising propane prices and declining spot LNG prices are expected to help Gujarat Gas in subsequent quarters. To be sure, spot LNG prices should not rise significantly from hereon.
A bigger disappointment came in volumes, said analysts. Abhijit Bora, senior analyst at Sharekhan, said CGD players like MGL and IGL saw strong margin recovery, but gas sales volume growth was subdued and missed estimates.
MGL’s total gas sales volume was at 3.4 mmscmd (million metric standard cubic metres per day) and remained flat on a sequential as well as y-o-y basis. IGL gas sales volumes at 8.20 mmscmd declined from 8.26 mmscmd in the previous quarter, but improved from 7.90 mmscmd in the year-ago quarter.
Gujarat Gas’ sales volumes at 9.2 mmscmd, though better than 8.86 in the previous quarter, were around 6.1% lower year-on-year.
The volatility in volumes failed to inspire investor confidence. Concerns already are being raised on rising electric vehicle (EV) penetration impacting gas volumes over the long term.
Overall, MGL’s earnings were well ahead of estimates, but IGL and Gujarat Gas missed estimates due to volume and margin miss, said Bora.
Meanwhile, there are some concerns that have erupted around the rise in Liquefied Natural Gas (LNG) prices. Australian LNG gas strike fears have been leading to a spike in European gas prices. European natural gas futures prices are up more than 30% in one month.
Australian gas, as per analysts, contributes around 10% to global supplies. Although spot gas prices have not risen as sharply, if the demand supply balance tightens ahead of winter, it can lead to a spike in spot LNG prices too, said an analyst at a domestic brokerage.
Since CGDs source some amount of gas from the spot market, the rise in spot prices can impact profitability and this, thereby, will be watched out for.
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Updated: 24 Aug 2023, 11:55 PM IST
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