Gujarat Gas swallows hefty price cut to swell volume growth
₹41.7 per standard cubic metre for its industrial piped natural gas (PNG) supplies to the Morbi cluster, effective 1 March. This move is expected to push up near-term volumes, especially considering that the Morbi region contributed to approximately 40% of Gujarat Gas' total sales volumes, which stood at 9.16 million standard cubic metres per day (mscmd) during the December quarter (Q3FY24). Notably, the majority of volumes in the Morbi region comprise industrial PNG.
The company has also benefited from the recent dip in spot LNG prices. So far in Q4, prices have declined to around $8 per mBtu from the November peak of $12 mBtu, and could help the company boost its industrial volumes, according to Swarnendu Bhushan, an analyst at Prabhudas Lilladher. However, this positive outlook may be tempered by the potential decrease in propane prices.
In Morbi, customers often opt for propane as an alternative fuel when natural gas prices surge. “As underlying propane prices begin to decline from May, we see risks to the volume recovery and expect limited benefits from Gujarat Gas’ move," said Hemang Khanna, analyst at Nomura Financial Advisory and Securities (India). Moreover, overall weakness in the ceramic industry could mean that Morbi volumes may grow just marginally in FY25.
As such, the competition from alternative fuels in Morbi might keep margins in check. In Q3, Ebitda (earnings before interest, taxes, depreciation, and amortization) per standard cubic metre (scm) was at ₹4.87 versus ₹5.92 in Q2. Gujarat Gas plans to maintain this within the range of ₹4.5 and ₹5.5 per scm in the long term.
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