The stocks of gas distribution companies got a thumbs up from investors, buzzing in trade on Thursday. This followed the notification from the Ministry of Petroleum and Natural Gas (MoPNG) increasing allocation of domestic gas for City Gas Distribution (CGD). The stocks of key beneficiaries, such as Indraprastha Gas (7.4 per cent), Mahanagar Gas (6 per cent) and Gujarat Gas (2 per cent) saw good gains in trade today, while others such as IOCL (over 1 per cent) and Adani Gas (0.04 per cent) saw tepid gains.

Even as CGD has been on the priority list for domestic gas, the incremental demand over and above the allocation made in August 2021 was asked to be met through imported spot LNG (liquified natural gas) in May. The government has now reversed its decision to allow CGD companies to be supplied higher domestic gas, following sharp increases in the cost of piped natural gas (PNG) over the last few months, due to soaring prices of spot LNG. The cost of spot LNG has more than doubled to a record $40 per MMBtu over the last few months. City Gas distribution companies such as Indraprastha Gas and Mahanagar Gas will likely get higher domestic gas to meet their PNG and CNG needs. According to sources, the allocation now is higher by about 18 per cent to 20.78 mmscmd (million metric standard cubic metre per day).

The cost of PNG and CNG saw a massive jump in the past year, as CGD companies had to use imported LNG for the same. For instance, in Delhi, Indraprastha Gas last week hiked PNG prices to ₹50.59 per standard cubic metre, the same was about ₹29.6 per scm (standard cubic metre) last year, implying a 70 per cent jump. Likewise, in Mumbai, Mahanagar Gas also announced a ₹4 per scm hike in PNG to ₹52.5 per scm. Similarly, the prices of Compressed natural gas (CNG) used for auto fuel also has risen by a whopping 74 per cent over the past year, from ₹43 per kg to 75.61 per kg now. While this on one hand  

Earlier, in April this year, the government, following representation by CGD players, agreed to review the allocation every three months, instead of the earlier timeframe of six months.

Despite the increased input prices (LNG), gas transportation and distribution companies reported mixed performance in the June quarter. While a few delivered strong results beating analyst expectations, some saw their profits decline due to higher input costs.

The winners

City gas distribution as a segment witnessed healthy volume and revenue growth and managed to deliver decent profit growth, even as their input (spot LNG) prices hit the roof. Indraprastha Gas for instance, reported stellar 62 per cent jump in EBITDA (Earnings before interest tax and depreciation) to Rs 617 crore in June 2022 quarter, from ₹380 crore in the same period last year, driven by 48 per cent jump in gas volume. Likewise, the net profit also witnessed a robust 72 per cent to ₹ 420 crore.

GAIL, which is the predominant player in the gas transportation business also reported, robust performance in the June 2022 quarter. The company saw its EBITDA rise by a massive 81 per cent during the period to ₹4,366 crore, compared to the same period last year. Ability to pass on price increases, and strong demand for gas aided the sharp jump in profitability. GAIL’s revenue for the quarter rose 116 per cent year-on-year to ₹37,562 crore. On a sequential basis also, the company grew revenue and operating profit by 39 per cent and 18 per cent, respectively.  

Adani Total Gas was the other player in this segment that managed to hold on to its profits, growing it by a tepid 6 per cent though, at the operating level. EBITDA rose to Rs 218 crore from Rs 207 crore, last year. The company’s revenue rose 111 per cent year-on-year to Rs 1042 crore, while net profit was flat at Rs 138 crore.

For Petronet LNG, which is a leading player in LNG imports and re-gasification reported flat EBITDA of Rs 1064 crore, 1 per cent higher than the previous year. However, the company managed to report a 10 per cent rise in net profit to Rs 700 crore, thanks to higher other income and lower interest cost.

Laggards

Mahanagar Gas, which is the dominant CGD player in Maharashtra, saw a 6 per cent decline in the operating profit during the quarter to ₹285 crore, compared to the same period last year. Inability to fully pass on gas costs impacted margins, despite the 136 per cent rise in revenue to ₹1,455 crore in June 2022 quarter.

Likewise, Gujarat State Petronet also saw its operating profit decline by 3 per cent to ₹360 crore. Net profit, however, saw a 2 per cent rise, on the back of higher other income.

While the June quarter was a mixed one in terms of performance, the September quarter holds some promise, thanks to the government’s move to provide cheaper domestic gas for CGD. Any softening of gas prices will support demand growth for gas distribution companies.

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