India Ratings has reaffirmed Gujarat Gas Limited (GGL) INR 47,000 million bank loan facilities at IND AAA/Stable/IND A1+ rating, underscoring the company's robust financial health and strategic positioning in the Indian gas distribution sector. This rating affirmation comes as GGL prepares for a significant corporate restructuring, with the ongoing amalgamation with its parent company, Gujarat State Petroleum Corporation Limited (GSPC), expected to conclude by the end of FY26.

Strong Operational Profile

Gujarat Gas Limited stands out as India's largest city gas distribution (CGD) entity, boasting an impressive network of 27 geographical areas. This extensive reach positions GGL at the forefront of India's growing natural gas market, providing a solid foundation for sustained growth and market leadership.

Financial Performance Highlights

The company's financial statements reveal a pattern of steady growth and improved financial stability:

These figures demonstrate GGL's impressive growth trajectory, with total assets increasing by 48.16% over the past five years and shareholders' capital nearly doubling with an 89.60% increase in the same period.

Healthy EBITDA and Net Cash Position

The rating affirmation by India Ratings is backed by GGL's healthy EBITDA generation in its city gas distribution business. While specific EBITDA figures are not provided, the strong growth in assets and capital suggests robust operational performance. Additionally, the company's net cash position further strengthens its financial stability, providing a buffer against market volatilities and supporting future growth initiatives.

Strategic Amalgamation with GSPC

The ongoing amalgamation with GSPC is expected to bring significant benefits to GGL:

1. Enhanced gas trading capabilities
2. Access to GSPC's long-term and spot contract sourcing abilities
3. Potential for revenue growth from the expanded gas trading business

This strategic move is anticipated to diversify GGL's revenue streams and strengthen its position in the gas value chain.

Future Outlook

With its strong market position, healthy financial metrics, and the upcoming amalgamation with GSPC, Gujarat Gas Limited is well-positioned for future growth. The company's focus on expanding its CNG and PNG network, coupled with the potential synergies from the GSPC merger, presents a positive outlook for stakeholders.

Investors and market watchers will be keen to observe how GGL leverages its enhanced capabilities post-amalgamation to drive further growth and maintain its leadership in India's evolving gas distribution landscape.

Gujarat Gas Limited , India's largest city gas distribution company, reported a mixed performance for the second quarter, with flat revenue growth and a decline in profitability amid challenges in the Morbi industrial segment.

Financial Highlights

Gujarat Gas reported Q2 revenue of ₹3,979.00 crores, a marginal increase from ₹3,949.00 crores in the same period last year. However, the company's profitability metrics showed a decline:

Operational Performance

The company's performance was marked by contrasting trends across different segments:

• Industrial Segment: Overall volumes fell by 8% to 4.34 MMSCMD (Million Metric Standard Cubic Meters per Day).
• Morbi Cluster: Volumes declined from 2.51 MMSCMD in Q1 to 2.13 MMSCMD in Q2, primarily due to competition from propane.
• CNG Segment: Showed strong growth of 13% year-over-year, with Gujarat recording an 11% increase and areas outside Gujarat delivering a notable 26% growth.
• Domestic PNG: Added approximately 42,400 new connections during the quarter.

Market Dynamics and Challenges

Gujarat Gas faces ongoing challenges in the industrial segment, particularly in the Morbi cluster, due to competition from propane. The company's management noted that the current price differential between natural gas and propane is in the range of ₹4.00 to ₹6.00 per SCM, with propane being cheaper.

Despite these challenges, the company maintains a baseline volume of 1.7 to 1.8 MMSCMD in Morbi, with over 200 customers exclusively using natural gas due to quality and operational heat requirements.

Future Outlook

Gujarat Gas remains cautiously optimistic about its future prospects:

1. Volume Guidance: The company expects volumes to range between 9-10 MMSCMD for the near term, depending on the competitiveness of natural gas prices against propane.
2. EBITDA Margin Guidance: Management maintains its guidance of ₹4.50 to ₹5.50 per SCM.
3. Capital Expenditure: Plans to invest approximately ₹800.00 crores in gas infrastructure for the full financial year.
4. Merger Progress: The company expects approval of the composite scheme of arrangement, which aims to eliminate the layered structure of the GSPC group and promote business synergy.

Strategic Initiatives

To address the challenges in the industrial segment, Gujarat Gas is exploring several strategic initiatives:

1. Propane Business Entry: The company is in advanced discussions with capacity providers, fleet operators, and international propane suppliers to enter the propane market.
2. Competitive LNG Sourcing: Efforts are underway to source competitively priced LNG with a target slope of around 12% or lower to Brent crude prices.
3. Infrastructure Expansion: Continued focus on expanding CNG infrastructure and upgrading existing facilities to promote clean fuel usage.

As Gujarat Gas navigates through a challenging market environment, the company's diversified portfolio and strategic initiatives may help in maintaining its market leadership position in the city gas distribution sector. However, the near-term performance will largely depend on the dynamics of global gas prices and the company's ability to remain competitive against alternative fuels.