With increasing demand for natural gas for domestic, commercial and industrial uses and Prime Minister Narendra Modi’s goal of increasing the usage of the fuel in the country’s energy mix, the business of city gas distribution is set to expand at a faster rate than before.
With large natural gas resources and import of the commodity, new opportunities are emerging in piped distribution of natural gas in urban areas and already three or four key players have emerged in the scene in addition to public sector refiners.
State-owned refiners such as Bharat Petroleum, Indian Oil and Hindustan Petroleum Corporation are going to increase the share of natural gas in their business and bidding for gas distribution projects in major demand centres. India’s consumption of natural gas may rise to 70 bn cubic metres (BCM) by 2022 and 100 BCM by 2030 and become one among the top 10 natural gas consumers in the world.
Amidst the positive growth trend seen in city gas distribution business, here is a look at the prospects of key players.
Indraprastha Gas Ltd was established in 1998 and began by taking over the Delhi City Gas Distribution Project from Gail (India) Ltd. The main objectives of the company are to provide safe, convenient and reliable natural gas supply to its customers in the domestic and commercial sectors; secondly to provide a cleaner environment-friendly alternative as auto fuel to Delhi residents to bring down the alarmingly high levels of pollution. For transport sector, natural gas will be given as CNG (Compressed Natural Gas) while for domestic purpose it would be PNG (Piped Natural Gas)and for industry R-LNG.
The company has been quite innovative by piloting the project of CNG based 2-wheelers. It registered a net profit of Rs 571.07 cr in 2016-17 representing a growth of 36.28% over the previous year. It has created mobile friendly apps such as IGL connect to better engage with customers.
In September quarter net profit rose 17.12% to Rs 168.87 cr while sales rose 17% to Rs 1,126.09 cr. On a returns perspective, 4.69% monthly, 24.75% quarterly and 51.16% half yearly compares well with peers.
It scores well on financial parameters with a return on equity of 20.13%, assets of 17.78% and net profit margin of 15.89%. It has a good cash flow ratio although liquidity ratios are slightly lower than that of peers. Promoters hold 45% stake in the company. It is trading at a price earnings ratio (PE) of 37.42 indicative of moderate to high pricing my market.
On technical charts Relative Strength Index (RSI) of 60.75 indicates bullishness while MACD line has witnessed a bullish crossover indicating a buy signal and Average Directional Index (ADX) of 16.17 indicates tight range bound trade. Stochastic momentum indicators are bullish. It is currently trading well above 50 DMA.
Target: 350 Duration: 4 weeks Strategy: Hold/Sell
Mahanagar Gas Ltd was established in 1995 as a joint venture between GAIL (India) Ltd and BGAPH (a subsidiary of Royal Dutch Shell Plc). The company aims to reduce pollution in Mumbai and beyond by providing clean energy solutions with domestic PNG, Commercial PNG, CNG for transport and industrial PNG. It has won several industry awards and is expanding its operations to Kalyan, Dombivali, Ambernath, Badlapur, Ulhasnagar, Bhiwandi Panvel, Taloja and Kharghar. It is the sole authorised distributor of CNG and piped natural gas (PNG). It has exclusive authorisation to lay, build, expand and operate in Mumbai until 2020, in Thane Urban and adjoining municipalities until 2030 and Raigad district until 2040.
Over the lastfive years, the Company generated `2,227 crore of cashflows from operations. MGL expects the cash flow generation to continue and made capex investments of Rs 255 cr and re[prted26.5% growth in net profits in 2016-17.
In September quarter sales rose 3.03% to Rs 533.76 cr while net profit rose 22.06% to Rs 124.79 cr. Earnings per share rose 22% to Rs 12.63. On a returns perspective, 3.14% quarterly and 12.93% half yearly are on par with industry and above Nifty returns.
It scores well on financial parameters with return on equity of 21.38/%, assets of 18.23% and net profit margin of 19.34%. Liquidity ratio and cash flow ratios present a mixed picture. It is trading at a PE of 24.52, moderately priced by the market.
On technical charts, RSI of 46.05 indicates bearishness while MACD line has witnessed a cross over while ADX of 17.90 indicates tight range bound trading and stochastic momentum indicators are bearish. It is currently trading below 50 DMA
Target: 1175 Duration: 4 weeks Strategy: Hold/Buy
Gujarat Gas Ltd is one of the largest gas distribution companies having operations in Gujarat and Maharashtra. GGL added 85,441 household customers and commissioned 22 CNG stations in 2016-17. Sales volume has grown by 4% in the residential segment and 8% in transport (CNG) segment.
The stand-alone net profit after tax (Total comprehensive income) for the current year 2016-17 increased to Rs. 176.83 Crores from Rs.154.38 Crores in the previous year. The Company had healthy net cash flows from operations of Rs.701.61 crores during the year 2016-17.The company is expanding by laying new pipelines spread across 22 districts.
In September quarter, net profit fell 15% to Rs 61.08 cr while sales rose 13.39% to Rs 1,391.41 cr. On a returns perspective, it has given 1.73% quarterly and 10.3% half yearly returns and 56.39% yearly. On financial parameters, it scores well on return on equity at 13.25%, assets of 3.49%, net profit margin of 4.33% while liquidity ratio and cash flow ratios aren’t encouraging. It is trading at a PE of 48 indicating higher valuation by market.
On technical charts, RSI of 41 indicates bearishness, MACD has witnessed a crossover and ADX of 20 denotes range bound trade. Stochastic momentum indicators are bearish.
Target : 890 Duration: 5 weeks Strategy: Hold/Sell
Major city gas distribution players have increased their business in the previous years and continuing to expand. However, fresh competition is also emerging and fluctuations in natural gas prices can impact the industry even though allocation of the fuel is through administered pricing mechanism.
Globally, natural gas accounts for 24% stake in energy consumption while in India it is around 6%. But in Gujarat natural gas accounts for 25% of energy consumed.In India Natural gas business has grown at a consistent pace of around 4% in the last decade buoyed by import of natural gas at a CAGR of around 9.3%. With increasing urbanisation and policy support for clean fuel, there is still more room for growth for city gas distributors.