Gujarat Gas tops Motilal Oswal's picks in City Gas Distribution space; here's why
Motilal Oswal Financial Services, quickly skimmed the annual reports of Gujarat Gas Ltd, Mahanagar Gas Ltd, and Indraprastha Gas Ltd, the three City Gas Distribution (CGD)s.Gujarat Gas continues to be Motilal Oswal's top choice among the three CGDS, said the brokerage in its latest report on Oil & Gas sector. According to the brokerage, Indraprastha Gas and Mahanagar Gas are both CNG-focused operators in the CGD industry, while Gujarat Gas is primarily focused on the Industrial segment.
In FY23, Gujarat Gas volumes decreased by 22% year over year (YoY) to 8.4mmscmd, whereas Indraprastha Gas and Mahanagar Gas volumes increased by 16% and 14%, respectively. Mahanagar Gas and Indraprastha Gas had volumes of 3.4mmscmd and 8.1mmscmd, respectively.
As long as the Indian crude basket is above USD65/mmBtu, the new pricing system is adverse to CGDs because it increases the price of petrol to USD6.5/mmBtu. The minimum Administered Price Mechanism (APM) cost is also increased to USD4/mmBtu.
According to the brokerage's study, prices for CGDs would have been lower under the previous administration if there had been no geopolitical uncertainties. The government established the Kirit Parikh Committee to reconsider the pricing structure of domestic APM gas in an effort to promote the switch to CNG (a cleaner fuel).
The Kirit Parikh Committee's suggestions for natural gas price were approved by the Union Cabinet on April 6, 2023, and will now be put into effect, explained domestic brokerage, Motilal Oswal Financial Services in its report. Natural gas generated from legacy fields will be priced under the new pricing structure at 10% of the price of the Indian crude basket, subject to dynamic floor and ceiling prices of USD4/mmBtu and
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