GUJARAT GAS

Gujarat Gas is a 65% subsidiary of British Gas, which has been operating city gas distribution business in southern Gujarat since 1989 and is today India's largest private sector CGD operator by volume. Over fourth-fifth of the company's 3.2 MMSCMD sales volumes go to the industrial retail sector, while transportation fuel (CNG) accounts for 10% and the rest 9% to households. 

   The company also has a small co-generation business. The company is approved to operate in Surat, Bharuch and Ankleshwar, however, its applications to move into adjoining geographies remain pending. To reduce supply disruption risk, the company obtains supply of natural gas from diverse sources, which include the Panna, Mukta and Tapti consortium (PMT), Cairn Energy, Gujarat State Petroleum Corporation, Niko Resources, Gail and British Gas. In effect, only a fraction of its gas is sourced at low administered prices with 95% gas purchased at market prices. 

   Availability of gas has always been the main impediment to the company's growth. For instance, a government directive curtailed its gas supply by 30% from PMT — the company's single-largest supplier — to 2.13 MMSCMD effective April 1, 2008. Ever since, it has to depend on spot purchases to maintain supplies to its customers.

GROWTH DRIVERS:

In its existing area of operations, the company has a substantial demand that can be exploited if it is able to source gas on a long-term basis. With the RIL's KG basin gas output crossing 60 MMSCMD, Gujarat Gas has recently obtained a firm allocation of 0.6 MMSCMD. The company's CNG business, too, is growing briskly with rapid growth in the CNGbased vehicles in the region. Similarly, regulatory approvals to enter new geographies will also prove a booster.

FINANCIALS:

Gujarat Gas was growing at a fast pace of 23% — topline as well as bottomline — between 2002 and 2007, which has slowed down substantially in the past two years. Between 2007 and 2009, GGL's net sales grew only 5.6% annually while profits grew at 6.7%. In past five years, its net worth has increased 25% annually while gross block expanded at 15.8%. Historically, the company's operating margin has remained at around 20% while net profit margin was 12%. The return on capital has remained around 35%, while the company remained debtfree and cash-rich.