Town gas distribution companies (CGD) remain in the spotlight due to the rise in gas prices. Some of these companies, such as Gujarat Gas Ltd and Indraprastha Gas Ltd, have already experienced some price increases. The same goes for passing higher gas costs on to customers. With an increase in international gas prices, the prices of gas produced in the country are also expected to increase from October 1.
However, despite the price increases, companies are expected to experience good sales growth. Gas remains a cheaper and cleaner alternative to other fuels. Rising crude oil prices have made gasoline and diesel much more expensive options for automotive fuel.
“Town gas sales volume, comprising compressed natural gas, or CNG used by vehicles, and piped natural gas, or PNG used by households and industries, is expected to increase by 25-27% during this period. exercise, “the rating agency Crisil said. would be driven by the rebound in vehicular mobility. Industrial activity is also on the rise. In addition, the sector has a record price advantage over competing fuels such as gasoline, diesel and heating oil.
Demand growth is also to be supported by a lower base from last year. The first quarter of fiscal 21 had a severe impact on mobility and industrial activities due to complete closures nationwide. Comparatively, the current year had a less severe impact as the blockages were statewide and the impact was also less.
As the benefit of a weak base can help, businesses should also benefit from expansions. An expanding CNG network and new geographies are expected to keep growth strong.
As growth remains strong, results will also be propelled by the good operating margins of CGD companies. Domestic gas prices have remained at record levels during the first half of FY22 and will not be raised until October 1. Only imported liquefied natural gas (LNG) was higher in the first half of the year, and here too LNG operators will absorb some of the higher costs.
In addition to stable margins, solid balance sheets (with debt / Ebitda of 0.3x and cash of ??4,600 crore as of March 31, 2021) would continue to support the credit profiles of town gas operators, shows a Crisil Rating study of five town gas distributors. These represent nearly three quarters of the industry’s volume.
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