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Torrent Group’s CGD arm Torrent Gas is in the fast lane of city gas distribution (CGD) business. The company reported 6 times jump in gas sales in the past two years and now aims at 1 million standard cubic meters per day (mscmd) gas volumes by March next. From cost management, fresh investments, acquisitions and fund raising plans, Jinal Mehta, Director, Torrent Gas, shares business insights and industry outlook. Excerpts:
What are the opportunities for the Torrent Group in CGD space?
Gas distribution in India is a highly under-penetrated sector. With the government’s focus for enhanced CGD coverage, we are entering into a high-growth phase of an estimated 15 per cent annually for the next decade. The target of increasing the share of natural gas in the overall energy mix from 6 per cent to 15 per cent looks achievable by 2030. This gives a huge opportunity in the CGD sector. Torrent Gas has authorisation for 16 Geographical Areas (GAs) having 32 districts. We have some highly prolific areas in these districts such as Chennai, Jaipur and a large part of Pune district. With this diverse portfolio of GAs, there is a high potential for growth for Torrent.
Is gas sourcing cost or gas availability a concern?
In the near term, availability of domestic gas doesn't seem to be an issue. But as the demand increases in future, will domestic gas production keep pace or not is to be seen. The government is clear in terms of its policy by giving the highest priority to the CGD sector for gas allocation.
Regarding sourcing costs, at Torrent, a bulk of sourcing happens through long-term, medium and short-term contracts. These contracts that are linked to various benchmark such as Brent, JKM (Japan-Korea Marker), Henry Hub etc. A very small portion of our requirement is open to spot market. Our strategy is to build a portfolio of contracts to deliver most optimum cost of gas for us.
What is your strategy to strengthen the CGD business? Are any expansions on the cards?
We intent to invest about ₹10,000 crore by 2026. This will be for 32 districts under our authorisation. So far, we already have invested about ₹1,800 crore. By pumping ₹10,000 crore, we expect our gas sales volumes to cross 5 mmscmd in five years. The investment plan doesn't include prospective new acquisitions or new GAs. We have done four acquisitions in the last three years and will continue to actively scout for acquisitions.
How are you looking to fund the investments?
We intend to fund it through 70:30 debt-to-equity ratio. The 30 per cent equity portion will come from holding company Torrent Investments Pvt Ltd. We don’t need to raise any external equity at this time. We may look at listing the company or initial public offer (IPO) at an appropriate time in future. Once the company reaches scale, we may look to monetise and come out with an IPO. There is no firm timeline for the IPO.
What is the natural gas price outlook for the coming months?
International LNG prices have been extremely volatile in the past one year. We expect the prices to continue to be volatile in near future and perhaps stabilise during the course of the next year. LNG as a commodity is expected to remain in oversupply in the medium term and will continue to be a buyers' market. This is because large liquification capacities are expected to be commissioned across the world.
The incremental demand for LNG from some of the largest markets in China, Japan and Korea has reached matured phase. The growth phase is in the markets like India, Pakistan and Philippines. But these are relatively smaller markets, so the incremental demand is not likely to outstrip the supply position. So, in the next couple of years, we may see a lot of supply coming up.