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How city gas distribution companies fared in Q2: A comparative study

Updated : November 13, 2019 03:22 PM IST

Margins came off recent highs but volumes were quite steady as expected

On the volume front, Gujarat Gas surprised the street positively but MGL’s was tepid

The gas sector has been in focus this quarter and specifically the city gas distribution sector. Both, Petronet LNG and GAIL, recently told CNBC-TV18 that gas consumption is increasing and the major demand is coming from the city gas distribution space.

The second-quarter earnings for these companies was good and while we did see margins coming off the recent highs, volumes were quite steady as expected.

On the volume front, Gujarat Gas surprised the street positively, by reporting volumes of 9.3 mmscmd which was higher than the street expectation of 9.16 mmscmd and also higher by 1 percent compared to the previous quarter and 39 percent when compared annually.

IGL volumes were also higher than the CNBC TV-18 poll and came in at 6.65 mmscmd (+12.6 percent year on year and +5.5 percent compared to the first quarter) which came in majorly from the domestic volume growth of 23 percent, followed by industrial volume growth at 15 percent and CNG volume growth at 10 percent.

MGL’s volume growth, however, was tepid. It grew only by one percent compared both quarterly and annually.

However, Mahangar’s volume growth is at a multi-quarter low

In terms of margins, IGL showed steady growth in terms of EBITDA/scm at Rs 6.4/scm (+13.1% YoY, +3.1% QoQ). Gujarat Gas, however, saw some contraction due to price cuts taken by the company. It came at Rs 4.3/unit (-23% QoQ, +63% YoY). For Mahanagar Gas, EBITDA/scm at Rs 9.7/unit is a fall of 3.6 percent compared to the first quarter but an increase of 19 percent compared annually due to improvement in gross margins of the company.

EBITDA/scm was expected to come off the recent highs that these companies saw in the first quarter. However, IGL still outperformed and reported a growth.

In terms of valuations, IGL continues to trade at a premium at 22.5X FY21EPS due to its consistent performance and better numbers when compared to peers. Gujarat Gas trades at 17.1X FY21EPS, and saw a big re-rating post the NGT ban on coal gasifiers and the valuation gap between IGL and Gujarat Gas has been reducing. MGL continues to lag, as it has not been able to deliver on the volume front. It trades at 12.8X FY21EPS but since the overhang with respect to British Gas stake sale is behind, brokerages expect the stock to outperform.

With so much thrust on gas consumption due to high pollution, it will be interesting to see how these companies perform in times to come. CNG and PNG continue to enjoy better economies if compared to diesel and petrol.

How city gas distribution companies fared in Q2: A comparative study

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