MOSL: GUJARAT GAS (Buy)-Ujjwala Scheme in PNG residential-See little negative impact on financials

GUJARAT GAS: Ujjwala Scheme in PNG residential; See little negative impact on financials; positive on volume growth

(GUJGA IN, Mkt Cap USD1.9b, CMP INR883, TP INR1195, 35% Upside, Buy)

Government starts Ujjwala Scheme for residential PNG consumers

• In 2016, the central government had launched the Ujjwala Scheme to increase access to subsidized LPG for below poverty line (BPL) consumers.
• The Gujarat state government has launched a similar scheme for piped natural gas (PNG) to BPL consumers.

 Do not see much impact currently

• The management of Gujarat Gas (GUJGA) suggests that for each PNG residential connection, it incurs ~INR1,600 on installation charges. It collects a refundable amount of ~INR5,000 as security deposit from consumers.
• Under the Ujjwala Scheme, the state government is expected to subsidize the first-time installation charge of ~INR1,600. The amount would first be borne by the CGD companies and then refunded by the government.
• The security deposit of ~INR5,000 would be recovered by the CGDs in 100 installments of INR50/month.
• There could be some increase in working capital due to possible delays in reimbursement from the state government. Additionally, since the security deposit would be recovered in installments, the CGDs would not be able to generate as much interest income as on their usual security deposits.
• There is also a likelihood that other state governments /central government may implement such a scheme which would have a bearing on other CGDs as well.