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Key business perspectives from the annual reports of IGL, MAHGL, and GUJGA

* With CGD operations set to start in newer geographies, their contribution to total natural gas consumption in India is expected to grow in the coming years from the current 20%.

* The government has taken various measures in FY21, including the start of an Indian Gas Exchange and revision in its transport tariff policy, which would aid growth of the industry and transform India into a vibrant gas market.

* Here are the key takeaways from the annual reports of all listed CGDs:

Companies witness customer additions across all segments

* IGL added 0.3m new PNG connections, which is the highest number of connections provided by any CGD in a single financial year, taking its total number of consumers to 1.7m. Comparatively, MAHGL added 83,198 consumers, taking its total household count to 1.25m. GUJGA added 102,000 households, taking the total number to 1.54m.

* GUJGA’s addition of new CNG stations stood at 150 (the highest in its history). For IGL, the same stood at 62, while MAHGL added only 15 CNG stations. This takes IGL’s total CNG stations to 612, GUJGA: 546, and MAHGL: 271.

* GUJGA services more than 4,000 Industrial and 12,900 Commercial customers. IGL services over 6,600 Industrial and Commercial consumers. MAHGL services 4,110 Commercial and 82 Industrial consumers.

* In terms of pipeline infrastructure, GUJGA remains way ahead of the other two, with a total network of 30,000km (MDPE/steel), while IGL and MAHGL has a total network of 16,527km and 5,916km, respectively.

EBITDA margin expansion observed across the board

* IGL’s gross margin expanded to INR14/scm in FY21 from INR11.9/scm in FY20. MAHGL also raised its gross margin to INR17.4/scm in FY21 from INR13.6/scm in FY20. GUJGA saw an expansion in its gross margins to INR8.4/scm in FY21 from INR7/scm.

* Despite opex/scm increasing by 15%, IGL expanded its EBITDA/scm to INR7.6/scm in FY21 from 6.4/scm in FY20. MAHGL expanded its EBITDA/scm to INR11.6/scm in FY21 from INR9.7/scm in FY20. Although GUJGA’s opex/scm rose ~11% YoY in FY21, its EBITDA/scm expanded by ~30% YoY to INR6.1.

* GUJGA is pre-dominantly focused on the Industrial segment, while both IGL and MAHGL are CNG-focused players in the CGD space. Volumes for GUJGA remained flattish at 9.4mmscmd in FY21, while volumes for IGL and MAHGL saw a decline of 17% and 26%, respectively. Volumes for IGL and MAHGL stood at 5.3mmscmd and 2.2mmscmd, respectively.

GUJGA remains our top pick among CGDs, remain neutral on IGL

* IGL expects the price differential of CNG and liquid fuel to continue, which would drive the conversion of petrol driven private vehicles to CNG. DTC and DIMTS have plans to add 1,000 and 400 new CNG buses, respectively, to their fleet, which would boost the company’s CNG sales.

* MAHGL is foraying into the Raigad district, which would provide additional opportunities for the expansion of its CNG and PNG networks. This would enable the company to increase its customer base by expanding its natural gas distribution network to cater to increasing demand.

* In our recently released report, we had highlighted how two prominent CGDs of China – ENN Energy and China Gas Holdings – have already been seeing a decline of 11%/3% CAGR during the past five years in their CNG/LNG retail sales. This was due to the steps that China started taking way back in CY09 towards Electric Vehicles. On the contrary, their PNG-Industrial/Commercial volumes continued to grow by ~20% CAGR over the same period.

* This reinforces our belief in Gujarat Gas (GUJGA). It remains our preferred pick among CGDs due to its large dominance in the Industrial/Commercial segment. Despite the fact that the stock has suffered in the past few weeks due to high spot LNG prices, which would adversely impact volume as well as margin in the short-term, we reiterate our faith in the stock with a BUY rating.

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