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With the reported exit of GAIL (India) Ltd, the race to acquire the BG Group's controlling stake of 65.12 per cent in Gujarat Gas Co Ltd (GGCL) narrows down between the Gujarat State Government-controlled GSPC Group and the Ahmedabad-based private sector energy major, Adani Group.
As the data room (a precondition in any bidding) for the next round of bidding is likely to open this week, the strongest competitor in the pack is definitely Adani. Sources are hopeful that BG may complete the divestment of GGCL as early as in March.
At the current market capitalisation of a little over Rs 5,000 crore at Rs 391 a share of Rs 2 each, the 65 per cent stake should cost nearly Rs 3,250 crore (19 times higher than the original investments of approximately Rs 170 crore by BG in 1997). While GAIL has reportedly found the GGCL valuation as overpriced during the run up to place the non-binding offer, market sources suggest that Adani is now all set to make the competition hot for GSPC. At present, managing India's largest city gas distribution outfit GSPC Gas backed by a completely integrated gas vertical, GSPC is keen to acquire Gujarat Gas, to ensure its near monopoly in nearly 8 mmscmd (million metric standard cubic metre a day) strong city gas market in Gujarat. Incidentally, Gujarat is the largest gas market in India.
Market analysts, however, feel that the reported exit of central public sector undertakings like GAIL and IndianOil from the race on grounds of “over valuation” should indirectly create pressure on State-owned GSPC to be adventurous enough in its valuations for GGCL.
“Gujarat Gas has limited back-end integration. The company's margins are already under pressure due to declining trend availability of cheaper domestic gas. Going forward this pressure should only intensify,” an analyst with a major equity research outfit told Business Line . “If fundamentals are to be considered, the current market valuation of GGCL is definitely on the higher side,” he said.
Though officially all sides are tight-lipped, sources suggest that even the GSPC camp is concerned on valuation issues. And, that precisely brightens the chances for Adani.
“Though everyone is ready to make a tough bargain, Adani's — which has been aggressively looking forward to expand its foothold in gas distribution segment — surely have an edge in this regard when compared with a public sector undertaking,” a source suggested.
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