Gujarat Gas Ltd Witnesses Share Price Decline Amid Earnings Report

Gujarat Gas Ltd Witnesses Share Price Decline Amid Earnings Report

VoM News Desk | November 6, 2023 | 02:24 PM IST | Breaking News | Follow on Google News

Gujarat Gas Ltd Witnesses Share Price Decline Amid Earnings Report

Gujarat Gas Ltd Witnesses Share Price Decline Amid Earnings Report

The share price of Gujarat Gas Ltd experienced a decline of over 1% in morning trading on Monday, despite the company reporting better-than-expected earnings for the September quarter. Analysts attribute this success to improved procurement of spot Liquified Natural Gas (LNG) cargoes. However, many experts have been revising their forward earnings estimates due to a subdued volume outlook for industrial Piped Natural Gas (PNG) supplies.

Competitive Propane Prices Impact Industrial Supplies

Competitive propane prices are having an impact on the company’s industrial supplies, particularly in the Morbi cluster, where consumers are shifting to higher propane usage. As a result, revenue estimates have been cut by 7%, while Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) and profit after tax (PAT) estimates have been reduced by 9% each for the fiscal year 2025. This revision takes into account the slow near-term growth in Morbi and updated medium-term volume growth guidance, according to analysts at Motilal Oswal Financial Services Ltd.

Concerns Over Industrial Gas Supplies

During the quarter, Gujarat Gas reported total gas volume of 9.32 million metric standard cubic meters per day (mmscmd), representing only a 1% sequential increase. The total industrial volume reached 5.86 mmscmd, remaining flat sequentially, with Morbi accounting for 3.9 mmscmd, indicating a 3% sequential decrease, as reported by Antique Stock Broking. Meanwhile, Compressed Natural Gas (CNG) volume was 2.62 mmscmd, up 0.5% sequentially, and CNG adoption continues to show double-digit growth. Nevertheless, the weakness in industrial gas supplies remains a concern.

Anticipated Recovery in Industrial Volume

Analysts predict an industrial volume recovery in the second half of calendar year 2024 (2HCY24) when spot LNG prices are expected to decrease due to substantial LNG capacity additions. Consequently, Gujarat Gas’s profit estimates for fiscal year 2024 have been cut by 9%, with fiscal year 2025 net profit estimates reduced by 12%. The analysts have also introduced fiscal year 2026 estimates, forecasting a 15% growth over fiscal year 2025, and they maintain their positive ratings on the company.

Gujarat Gas reported revenues of INR 3,991 Crore during Q2, which were comparable to the first quarter but lower than the INR 4,108 Crore reported during the year-ago quarter. The company reported a net profit of INR 298 Crore in Q2, an improvement from INR 215 Crore in the first quarter, with operating profits at INR 507 Crore, marking an increase from INR 397 Crore in the previous quarter.

Analysts at Jefferies India Pvt Limited note that Gujarat Gas’s EBITDA exceeded expectations by 12%, driven by better margins, although CNG and Industrial PNG volumes disappointed. Approximately 50% of Morbi’s volume is on alternate fuels. The company’s strategy to price at a 12-14% premium to propane in Morbi in the third quarter of fiscal year 2024 to date will keep volumes at current levels during the winter. As a result, net profit estimates for fiscal year 2024, 2025, and 2026 have been lowered by 3%, 6%, and 7%, respectively, due to subdued volume recovery.

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Disclaimer: The opinions and suggestions provided in this article are those of individual analysts and do not reflect the viewpoints of VoM News. We encourage investors to consult with certified experts before making any investment choices.

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