City gas distributor shares trade weak; IGL, MGL, Gujarat Gas down up to 6%

Shares of city gas distribution (CGD) companies were under pressure in an otherwise firm market on expectation of weak earnings. Indraprastha Gas (IGL), Mahanagar Gas (MGL) and Gujarat Gas were down in the range of 5 per cent to 6 per cent on the BSE on Friday. In comparison, the S&P BSE Sensex was up 0.50 per cent at 57,801 points at 11:10 AM.

Analysts at ICICI Securities believe that the sales volume of CGD companies with high compressed natural gas (CNG) contribution will grow around 19 per cent year on year (YoY), while companies with high piped natural gas (PNG) contribution in sales mix are likely to report decline in sales YoY due to lower industrial offtake.

On the cost front, CGD companies are expected to incur high gas sourcing costs as spot liquefied natural gas (LNG) prices continue to remain at elevated levels. "In spite of price hikes taken during the quarter, gross margins are expected to decline YoY. For large gas utility companies, volumes are expected to be lower as LNG import volume is estimated to fall YoY," the brokerage firm added in a note.

Among individual stocks, Gujarat Gas dipped 6 per cent to Rs 479 on the BSE in intra-day trade today. It traded close to its 52-week low of Rs 478.15 that it had touched on March 28, 2022. In the past three months, the stock has declined 30 per cent, as compared to 1 per cent rise in the S&P BSE Sensex.

For Gujarat Gas, analyst expect revenues to increase 39.9 per cent YoY on account of higher realisation. Meanwhile, volume is expected to decline ~12 per cent YoY and ~6 per cent quarter on quarter (QoQ) to 10.7 mmscmd as expect lower offtake from industrial customers. "Due to a sharp increase in gas costs, gross margins are expected to contract Rs 1.5/scm YoY to Rs 5.5/scm. Hence, we expect profit after tax (PAT) of Rs 152.5 crore, down 56.4 per cent YoY," the brokerage firm added.