MOSL: GUJARAT GAS (Buy)-Strong volume growth outlook
Gujarat Gas: Strong volume growth outlook
(GUJGA IN, Mkt Cap USD1.5b, CMP INR153, TP INR183, 19% Upside, Buy)
We recently met the management of Gujarat Gas (GUJGA); key highlights:
Closure/dismantling of all coal gasifiers at Morbi boosts volumes
- In early 2019, sales volumes were down to ~2.1-2.2mmscmd, but the closure of coal gasifiers has boosted current sales volumes to ~3mmscmd at Morbi.
- Although ceramic manufacturers have shifted, they have not come forward to sign term contracts.
- Peak potential at Morbi is ~6mmscmd. Although we have witnessed sudden increase in sales volume, sustainability of the increase depends on whether the judiciary leaves the order unchanged, amidst protests from ceramic manufacturers.
The NGT order would also influence future investments
- Newer investments in Morbi and nearby areas are increasingly from larger, organized players. The National Green Tribunal (NGT) order should also bring a structural shift in investment projects towards greener fuels.
- Impact could be a precursor for other regions; the chemical/pharma belt of Ankleshwar-Bharuch-Vapi is equally polluting.
- Competition from coal caused sales at Surat to decline from earlier peak of 1.8mmscmd to 0.8mmscmd. Emphasis on cleaner fuels should propel sales across the state.
Gujarat Gas Ltd Formerly known as Gujarat Gas Company Limited. Gujarat Gas Company Limited is an India-based company. The Company is engaged in Natural Gas Business in Gujarat. Natural gas business involves distribution of gas from sources of supply to centers of demand and to the end customers. The Company has underground pipe lines consists of mild steel (ME) and polyethylene (PE). These lines gas is supplied to Residential, Industrial, Commercial and Compressed Natural Gas (CNG). The Company also supplies piped natural gas to customers and retails compressed natural gas. Gas is used by customers for applications, such as heating, cooling, power and process. The Company has two subsidiaries namely Gujarat Gas Financial Services Limited and Gujaratgas Trading Company Limited.
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