It’s been a stressful week for Indian gas companies so far. It was a massacre of sorts for Indraprastha Gas Ltd (IGL), whose stock has fallen by 41% in the past four trading sessions. The IGL stock has been affected because the Petroleum and Natural Gas Regulatory Board ordered it to cut tariffs.
Other gas companies, including Gujarat Gas Co. Ltd, GAIL (India) Ltd and Petronet LNG Ltd, too, felt the heat, albeit not so strongly.
At a time when sentiment on gas stocks is weak, expectations from the companies’ March quarter results aren’t too high. Both city gas distribution firms, IGL and Gujarat Gas, are likely to see operating margins decline year-on-year.
Having said that, profitability and price realization of both the firms are expected to look better sequentially, helped by the price hikes taken. For the March quarter, volumes of both the firms are expected to remain flat compared with the December quarter, according to a forecast by Centrum Broking Ltd.
On the other hand, gas transporter GAIL’s profitability is expected to be under pressure due to the higher subsidy burden. GAIL had accounted for lower subsidy in the December quarter, the effects of which will be reflected in March quarter results.
Some analysts have pegged the firm’s subsidy burden at around Rs1,200 crore. Moreover, gas transmission volumes are likely to be muted. GAIL’s stock has fallen the least among the four gas firm stocks this week, but triggers for appreciation are few.
The fact that domestic gas supplies are not going to increase anytime soon hardly offers any comfort. What’s more, there have been news reports that Reliance Gas Transport Infrastructure Ltd, a gas transmission and distribution business, is up for sale.
What about Petronet then? The stock has fallen 8% this week and is currently at about 11 times estimated earnings for fiscal 2013. It appears to be a relatively safer bet compared with the city gas distribution firms or transmission and distribution companies.
But considering that sentiments are bleak for gas companies, perhaps investors may shy away from them. For the March quarter, Petronet is expected to report strong growth in revenue and net profit on a year-on-year basis. Sequentially, though, growth may be muted.
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