Tag: city gas distribution (CGD)

Gujarat Gas, Mahanagar Gas shares soar as Street celebrates surprising margin boost

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Shares of city gas distribution companies like Mahanagar Gas (MGL) and Gujarat Gas (GGL) soared in early trade on Wednesday as Street celebrated the huge rise in the companies’ margins.

Shares of Gujarat Gas rose as high as 8.75 percent to Rs 550.95. The stock outperformed the sector by 3.76 percent and opened with a gain of 5.97 percent. At 10:30 am, it is quoting at Rs 545 apiece on the BSE, up Rs 39.25 or 7.75 percent.

Meanwhile, Mahanagar Gas stock touched an intraday high of 6.8 percent to Rs 799 per share. The company’s shares opened with a gain of 2.25 percent and outperformed the sector by 2.19 percent. The stock has gained after 5 days of consecutive fall and is currently trading at Rs 781.55 per piece, up Rs 33.40 or 4.48 percent.

There was good news in the fourth quarterly numbers for Mahanagar Gas and Gujarat Gas. While investors expected margin expansion, the margin for both firms came in much higher than what the Street was working with.

As per a CNBC-TV18 poll, the Street expected the margin to come in at 10.1 percent for Mahanagar Gas. However, margin came in at around 20 percent. Its profit came in higher than the poll numbers at Rs 131.8 crore.

For Gujarat Gas, margin came in at a whopping 15 percent versus an expectation of 8 percent. They capped volumes at higher levels, and that is something that aided margins for the company. Its profit grew on a sequential basis and came in at Rs 444.3 crore.

As far as valuations are concerned, Mahanagar Gas is the cheapest in the city gas distribution space at 9.8 times, while Gujarat Gas trades at 19.50 times which is more expensive than both Indraprastha Gas (IGL) and Mahanagar Gas.

On the back of these numbers, Jefferies has increased Gujarat Gas’s EPS estimates by 13 percent.

Citi, however, has a different take on Gujarat Gas and has cut its target price, despite the big margin boost and the belief that the worst is behind for the company in terms of margins.

Jefferies has a ‘buy’ call on Mahanagar Gas too, with a target price of Rs 1,400 per share. It reported a 20 percent beat on EBITDA driven by a higher margin, and that is something that is making all the brokerages positive on these two stocks.

Catch the tick-by-tick coverage of today’s market action here

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Need to be selective in EV space; bullish on consumer durables: Kotak Mahindra AMC

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Pankaj Tibrewal, Senior Executive Vice President and Fund Manager-Equity, Kotak Mahindra AMC, believes there’s a need to be selective about stocks in the electric vehicle (EV) space. According to him, the electric vehicle theme has just started globally and in India as well and lots of companies are currently going through the EV transition. In this regard, he also stated that he likes auto ancillaries that benefit from this space.

In an interview to CNBC-TV18, Tibrewal said, “We need to be cognizant of the fact that we need to be very selective in the stocks that we pick up. Our preference in this sector is more towards auto ancillaries which are agnostic to any engine whether internal combustion engine (ICE) or electric vehicle (EV) and we are positioning our portfolio accordingly.”

On sectors other than autos, he is bullish on the entire consumer durables space. According to him, penetration levels have been really low in the sector.
Additionally, he also mentioned that Kotak has several companies across the white goods and appliances sectors in its portfolio.

“This sector is bound to do well. But what we need to be careful about is- which are the companies that are innovative, have strong brand distribution and pricing power over a period of time. There are many companies in our portfolio across appliances and white goods sector where we are positive on, but from a 3-5 year perspective, this sector is looking very good,” Tibrewal said.

On the IT space, he remains confident about the earnings momentum going strong. However, he cautioned that valuations are a big challenge for the sector.

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“We are very selective on this space. We believe valuation, compared to the past 5-6 years, is very high. There is a very high probability that earnings will come in, what happened in Q3, but stocks didn’t react positively to it and as a result, we saw multiple compression happening and that’s a possibility as we move ahead in the next 12 months,” said Tibrewal.

He mentioned that he is positive on the city gas distribution (CGD) companies as well. According to him, the oil and gas sector has seen low investments lately and supply in the sector is not in sync with demand.

For the entire interview, watch the accompanying video.

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Optimisation through automation: A roadmap for gas distribution companies

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India is the world’s third-largest energy-consuming country and also the world’s third-largest carbon emitter. Having committed to the Paris Agreement to curtail its carbon footprint by 33-35 percent from its 2005 levels, the country is looking at pursuing low-carbon energy pathways that would help achieve the goal by 2030.

Towards this, the Petroleum and Natural Gas Ministry has announced a target of increasing the share of natural gas in the country’s primary energy mix to 15 percent. Furthermore, India’s rapid pace of motorisation and industrialisation is the driving force that will triple the demand for the low-polluting urban utility by 2040, making the country the fastest-growing natural gas market in the world.

While City Gas Distribution (CGD) companies may explore the idea of investing in infrastructure to cater to the surge in demand for natural gas, they would also be circumspect about the possibility of competition coming in if the market opens up for use by third party incumbents in the future – as it may impinge upon their exclusive rights to operate and grow their gas distribution infrastructure in their designated geographies.

In either scenario, they would realise that automation can help gain a stronger foothold and reap benefits that can propel them ahead in several aspects of operations within their downstream business.

Automation: A vital factor for getting ahead of the curve

Considering the extensive network of infrastructure assets that need to be maintained, gas companies would choose to make smart choices about where to focus efforts. Automation, an integral part of a digital transformation solution, holds the key to optimising the outcomes that meet evolving business demands – in a relatively swift and cost-effective manner.

Tapping into the power of breakthrough technologies can unlock greater business value from various processes including gathering, processing, storing, and even distributing natural gas.

Also Read: Intelligent Automation of Shared Resources

Process Automation is regarded as being the technology that energy companies can rely on for modernising internal processes. While enabling improved access to information on operations and maintenance, it helps the industry streamline its production and distribution functions, resulting in incremental yield.

Addressing the priorities of cost, performance and risk, automation enables optimisation while focusing on reliability and availability of the yield, asset life cycle cost reduction, improved decision-making, and mitigation of critical failures – with safety and sustainability as a key priority.

To illustrate, gathering and analysing real-time digital data for a plant, equipment or process can save significant time and cost spent otherwise on manual inspection. Using SCADA technology, the power of analytics and network sensors, CGD companies can conduct preventive maintenance and even control key processes through remote access – ensuring safety, reliability of service, process optimisation and cost reduction.

The application of process automation solutions like SCADA technology is enabling the modernisation of gas distribution networks in metropolitan cities of India.

When it comes to harnessing the power of technology to realise process efficiencies, automation not only takes the company forward through modernisation but also optimises manpower deployment, streamlines production, reducing the total cost of ownership (TCO). Automation fits like a glove in Industry 4.0, enabling a fast, efficient, and secure path to OT-IT integration.

Most notably, automation provides a control methodology that helps to automate workflows while optimising operations, helping companies maximise uptime and enhance performance. It offers a real-time relational Database Management System that goes on to enhance data integrity and data retrieval. It augments the safety and accuracy of existing human-driven tasks, reducing untoward incidents such as injury and loss of life.

By deploying automation, CDG companies can save time through actionable insights and achieve scalable processes. When internal IT processes are modernised and automated, all energy operations and the production process get simplified boosting yields, reducing the carbon footprint and increasing potential revenue.

When automation is powered with Artificial Intelligence (AI), the business can avail the advantage of contextualising and integrating valuable data from diverse and disparate systems scattered across units and pipelines.

Automation also helps utilities in their distribution network to identify gas leakages and pressure variations that could lead to environmental hazards and also revenue loss. Bringing together real-time operational data and combining it with engineering and transactional data, while applying AI to garner meaningful insights, is now a reality with the integration of AI in automation. These insights help improve the performance and efficiency of any gas distribution company’s assets, processes, and production.

In conclusion

Keeping India’s energy targets in mind, natural gas is going to gain a larger share in the country’s energy mix. The existing regulatory scenario and policies are conducive for CGD companies to gear up for the increasing demand. In the wake of potential competition, increasing margin pressures, and the need for reducing costs, the adoption of automation becomes a prerequisite for any business to stay relevant and meet the evolving demands of its end consumers.

The government plans to invest approximately $102 billion on oil and gas infrastructure in the next five years, with a focus on doubling natural gas production to 60 billion cubic metre (bcm), and also plans to drill more than 120 exploration wells by 2022.

Furthermore, with a view to expanding the national gas grid to 27,000 km, the government has announced that it would add 100 more districts to the City Gas Distribution (CGD) network by 2023. The Petroleum and Natural Gas Regulatory Board has already laid the groundwork for providing CGD coverage to 70 percent of India’s population. While there is a strong emphasis to shift to a gas-based economy, CGD companies, more than ever before, would seek newer ways to meet the burgeoning demand for natural gas.

Increasing the contribution of electricity to decarbonise mobility, moving into clean fuels, and emphasizing automation across energy systems, are steps towards realising a cleaner and greener India.

The author, G Balaji is head of Energy Industries division in Industrial Automation, ABB India. The views expressed are personal.

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City gas distribution companies like IGL, MGL Gujarat Gas in a sweet spot: JM Financial

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Oil prices have rallied more than 26 percent to 13-month highs in both Brent and WTI since the start of the year. In our special segment, ‘Hunt For Value’, we take a look at how Q4FY21 is looking like and how are valuations shaping up for the oil and gas space.

Dayanand Mittal, Oil & Gas, Telecom Research Analyst, JM Financial Institutional Securities helped analyse the situation.

“Last one year rally on Bharat Petroleum Corporation Ltd (BPCL) has been on the back of this disinvestment newsflow and with the government focusing to close this deal in the first half of next year, there is more optimism around it,” he said.

“BPCL could be a big beneficiary assuming things go well,” he added.

“For GAIL, the biggest concern has been the weak crude prices because that has headwinds for both – gas trading business and weak crude price usually means weak petchem and liquefied petroleum gas (LPG) margins. So with crude price recovery the concerns on the gas trading business goes off. That has been a key concern for most of the investors. Petchem and LPG margins are also recovering. There is still scope for some upside even from current levels,” he added.

“In the oil and gas space, city gas distribution (CGD) companies are our preferred picks. It is a secular growth story. They also have very strong pricing power. Indraprastha Gas Ltd (IGL), Mahanagar Gas Ltd (MGL) and Gujarat Gas are in a sweet spot, we prefer IGL followed by Gujarat Gas,” he stated.

For more, watch the video

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CGD players to see sustainable double-digit volume growth going ahead, says Edelweiss’s Jal Irani

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The city gas distribution (CGD) sector provides a healthy growth opportunity and has a huge potential for further upside, said Jal Irani, Senior Vice President for Institutional Equity Research at Edelweiss Financial Services.

Speaking to CNBC-TV18, Irani said that the CGD is the sector to be in – both in the near-term as well as in the long-term.

“It is going to be a significant sustainable double-digit volume growth for years to come. Mahanagar Gas Ltd (MGL) or Indraprastha Gas are largely going to see the same volumes as they had done pre-COVID. Next quarter is going to be a fairly sharp growth in excess of 10 percent. The trajectory in the near-term is strongly positive on volumes,” he said.

Irani noted that Gujarat Gas was earlier adding 50 gas stations a year, but now the company was adding 150 gas stations a year.

“That is a very significant area of growth. Their margins are amongst the lowest in the CGD play, so they have got a huge margin upside as well. I think Gujarat Gas should continue doing very well,” he said.

For more, watch the video…

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Explained: How domestic gas prices are set and how it affects various stakeholders

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Domestic gas prices have been slashed by 25 percent. While it is a positive for consumers like fertiliser companies and also City Gas Distribution (CGD) companies, it may not benefit gas producers. So how is the pricing fixed in different countries and what will be the impact if the reduction is not passed on to the consumer? CNBCTV18’s Sonal Bhutra explains.

To watch other videos in this series, click the Explained tab below.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

India to launch 11th city gas licensing round soon: Pradhan

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India will soon launch a bid round to give out licences for retailing gas in cities to help extend the coverage of environment-friendly fuel to about 500 cities, Oil Minister Dharmendra Pradhan said on Thursday.

During 2018 and 2019, sector regulator PNGRB gave out licences to retail CNG to automobiles and piped cooking gas to household kitchens in 136 geographical areas or GAs. This extended coverage of the city gas network to 406 districts and around 70 per cent of the country’s population.

“The 11th city gas distribution (CGD) authorisation round will be launched very soon. PNGRB is preparing for it,” he said at a virtual event organised to commission 56 CNG stations in 13 states and one UT.

“50-100 districts, particularly in Chhattisgarh, Madhya Pradesh, and Vidharba, will join the city gas network after the 11th round.”

The push for city gas expansion is part of the government plan for raising the share of natural gas in the country’s energy basket to 15 per cent by 2030 from the current 6.3 per cent. Pradhan said gas is cheaper, convenient, and environment friendly and its greater use will help cut dependence on oil imports.

The 11th bid round is being planned around a new pipeline being constructed from Angul in Odisha to Mumbai in Maharashtra to ferry natural gas between the east and west coast. State-owned gas utility GAIL has started work on the Angul-Mumbai pipeline, he said adding 17,000-km of gas pipelines particularly in the eastern part of the country are being built to connect gas sources with consumption centres.

Also, the capacity of liquefied natural gas (LNG) import terminals is being raised to meet rising domestic demand, he said. Pradhan said retail outlets dispensing CNG have risen from 938 in 2014 to 2,307.

“This number will rise to 10,000 in 4-5 years” after companies roll out operations in all the areas for which licences have already been given.

Similarly, the number of households getting piped cooking gas is targeted to rise to 5 crore in coming years from the current 62.5 lakh, he said. The government, he said, has liberalised norms for petrol and diesel retailing by removing the condition of Rs 2,000 crore investment in the hydrocarbon sector.

Any entity with a turnover of Rs 250 crore can now set up petrol pumps and retail auto fuels, he said asking city gas entities to look beyond CNG and set up outlets that can retail not just gas but also petrol and diesel as well as charge electric vehicles (EVs). “Don’t get stuck at CNG station. Go for big retailing,” he said.

The government is also pushing for use of LNG as a fuel in trucks and buses and 100 LNG pumps are planned to be set up on the Golden Quadrilateral connecting the four metros as well as on the North-South, East-West highway corridors and in mining blocks, he said.

In August 2019, Pradhan had stated that an investment of about Rs 1.2 lakh crore was to be made by 2030 in the rollout of city gas network in almost 300 districts for which licences have been given for the 9th and 10th bid rounds.

During 2018 and 2019, the Petroleum and Natural Gas Regulatory Board (PNGRB) awarded licences for setting up city gas distribution networks in 136 GAs.
While Rs 70,000 crore investment was committed in 86 GAs awarded in the 9th city gas bid round in August 2018, another Rs 50,000 crore was committed in the 50 GAs awarded in the 10th round in March 2019.

Less than 20 per cent of the population was covered by city gas distribution network in 2014 and after the award of the 10th bid round, this reached 70 per cent.

While 86 GAs, made up of 174 districts, were offered for bidding in the 9th round that concluded in August 2018, 50 GAs, comprising 124 districts, were offered in the 10th round.

With the completion of the 10th bidding round, CGD would be available in 228 GAs comprising 406 districts spread over 27 states and Union Territories covering approximately 70 per cent of India’s population and 53 per cent of its geographical area. The 56 CNG stations commissioned on Thursday were set up mostly by Adani Gas and Indian Oil Corp (IOC).

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Drop in raw material prices to give a fillip to city gas distribution firms, says CLSA

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The city gas distribution (CGD) companies are likely to benefit from a slew of positive reforms and falling raw material prices in the year 2020.

According to CLSA, CGD stocks such as Indraprastha Gas Ltd (IGL), Mahanagar Gas Ltd (MGL) and Gujarat Gas are well-placed to gain from a decline in raw material prices, a slew of reform-linked tailwinds and rising competing fuel price.

The global brokerage reiterated ‘Buy’ rating on the stocks and raised its target price (TP).

CLSA raised Gujarat Gas EPS by 7-9 percent and target price to Rs 315 from Rs 270 earlier.

“Gujarat Gas is a play on tighter environment norms against the use of polluting fuels in small factories, even as soft LNG price remains a tailwind for the stock,” CLSA said in a report.

It raised TP for IGL to Rs 540 from Rs 510 and for MGL to Rs 1,425 from Rs 1,380 earlier.

“An approximately 23 percent fall in domestic gas price in April 2020 after the 12.5 percent cut in October 2019 will bring down raw material cost and boost volumes/margins. Inclusion of gas in GST, added push on CNG vehicles after BSVI adoption in April 2020, further tightening of norms against polluting fuels, and tax benefit on CNG vehicles are other possible tailwinds,” CLSA said.

The brokerage expects MGL’s infra exclusivity in Mumbai to be extended after it expires in 2020, which may remove a big overhang.

“MGL has the best risk-reward, IGL has the most consistent growth in the space, and Gujarat Gas is a play on weak LNG prices,” CLSA said.

Moreover, more than 15 percent rise in Brent crude price in the past three months on bigger cuts by Opec may drive up prices of competing fuels such as diesel and petrol.

This combination of falling raw material costs and rising competing fuel prices will further raise the discount of CNG/PNG to competing fuels, which will support volume growth as well as give room for additional margin expansion in 2020, the report added.

Continued depressed LNG prices could be another tailwind to support growth in the industrial and commercial sectors.

Further, the gas sector may see game-changing reforms in 2020. Being key gas consumers, city gas companies outside Gujarat may see big gains from the inclusion of gas in GST.

Any further action to curb the use of polluting fuels, as recommended by the National Green Tribunal, could be positive for CGD players such as Gujarat Gas, CLSA said.

There has been a demand to bring down the GST rate of CNG vehicles in-line with Electric Vehicles, i.e to 5 percent from 28 percent. If accepted, this would be a big positive for CNG demand.

Additionally, the 25-year period of infrastructure exclusivity for MGL’s Mumbai (GA-1) licence expires in May 2020. CLSA expects this exclusivity may be extended by 10 years, which could allay a big investor concern for MGL.

“This should also be taken as a positive read-through for IGL, which will see its 25-year infrastructure exclusivity in Delhi expire in 2023,” CLSA said.

High volume growth and weak LNG price should start a virtuous cycle for Gujarat Gas as higher industrial volume increases mix of cheaper spot LNG, which will bring down the unit raw material cost. This should attract more volumes and boost margins.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow