MOSL: GUJARAT GAS (Sell)-Exclusion of gas from GST adds to pain

​GUJARAT GAS: Exclusion of gas from GST adds to pain; Maintain Sell

(GUJGA IN, Mkt Cap USD1.6b, CMP INR762, TP INR697, 9% Downside, Sell)

Gas volumes down post GST

With gas not being included under GST, it has become more uneconomical. Dirtier alternatives like coal and fuel oil have been included under GST.

As a result, industrial offtake for Gujarat Gas has been suffering. Our discussions with the consumers suggest that the sales volume at Morbi has declined from 2.65mmscmd a few weeks ago to 2.2mmscmd.

Propane emerges as a new challenge

In our Initiating Coverage report, we had mentioned that LPG accounted for 4% market share at Morbi.

We understand that suppliers are building infrastructure at Rajkot, which would facilitate further inroads for LPG.

Additionally, of the 0.45mmscmd volume lost, 0.1mmscmd has been replaced by propane, which is INR6/kg cheaper than gas at INR24.5/kg. We believe few more companies are contemplating propane usage.

Coal continues to be a challenge

With coal at INR8/kg, it remains ~20% cheaper than gas. Gas has a market share of ~35% at Morbi and coal gasifiers have a market share of ~60%; the rest 5% is currently with LPG and Fuel Oil.

Although ~100 ceramic units are getting added this year, we believe that coal would remain a challenge amid cheaper alternatives.