Gujarat Gas Ltd shares have gained nearly 3% in the past one week after a massive 20% fall since August. This optimism comes on the back of the recent price hike by the company.
The jump in spot gas prices has impacted city gas distributors like Gujarat Gas, which has impacted profits. Spot LNG (Liquefied Natural Gas) prices have seen a huge increase in Europe and other regions due to high demand and shortages. Spot LNG prices also crossed the $30 per mmBtu (Metric Million British Thermal Units) mark, a significant increase from $2 per mmBtu in May last year.
Domestic gas prices have also recently been increased from $1.79 per mmBtu to $2.6 per mmBtu. The company has increased the prices to offset the impact of higher gas prices.
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Analysts say prices have been hiked by up to 25 per cent in the PNG-industrial and PNG-commercial segments. What’s more, CNG (compressed natural gas) prices have been increased by ₹2.5/kg.
Unless LNG prices rise sharply from here, management’s guidance ₹Analysts at Motilal Oswal Financial Services Ltd in a report said that 4.5-5.5/standard cubic meter would be well protected for margins.
Analysts at Jefferies India Pvt Ltd said the sharp 25 per cent growth reported by Gujarat Gas in the industrial sector is encouraging and will cover the spot LNG price of $22 per mmBtu, till the volume is 11 mmscmd (Million Metric Standard Cubic). meters per day). . Ltd. in his note. This provides some relaxation on near-term earnings, he added.
However, price moves cut both ways: they can support profitability but also affect volumes in the near term. Analysts believe the company’s sales volume in the industrial cluster of Morbi in Gujarat has already fallen in September after the price hike in August.
Gujarat Gas has hiked prices by 40% since January, against a 12% hike by manufacturers in the industrial cluster of Morbi. Jefferies analysts say this could lead to some reduction in sales at the low-margin plants in the Morbi cluster.
The fall in volumes meant the company had to buy low-cost spot LNG, which could help on margins. Q2 Ebitda (earnings before interest, taxes, depreciation and amortization) margins may still be strong ₹5/standard cubic meter or more due to spot exposure, analysts said.
That said, the company’s volume growth will be closely watched this year to make up for any long-drawn weakness.
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