Profits Under Pressure

Gujarat Gas may not be able improve its profitability without significant volumes growth

Gujarat Gas results for 2002 have failed to impress analysts. The company's profits declined 8.45 per cent from Rs 59.06 crore to Rs 54.07 crore for the current financial year despite a sales growth of 23 per cent.

The reason was obvious. The company's profit margins have come under severe pressure due to an increase in gas prices during the period. Gas prices began to shoot up from July 2002, and are up 12.5 per cent since then.

Currently, the price is ruling at Rs 9 per square cubic metre (SCM). This is said to have directly affected the company's profits as it has been unable pass on the entire price increase to users.

Another factor that adversely impacted the company's performance was a supply cut by Gas Authority of India (GAIL). During 2002, GAIL decreased its gas supply by 30 per cent. This forced Gujarat Gas to pick up gas from private sector players at market prices.

Currently, Gujarat Gas sources 23 per cent of it total requirements from GAIL, down from 37 per cent last fiscal. The company sources more gas at market-related rates which are higher.

Analysts also predict that the company will find it difficult to increase profit margin