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Gujarat Gas spreads rise, but doubts remain

Gujarat Gas spreads rise, but doubts remain
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First Published: Wed, Mar 02 2011. 09 28 PM IST
Updated: Wed, Mar 02 2011. 09 28 PM IST
Gujarat Gas Co. Ltd’s (GGCL) stock shot up by 10% on Tuesday to Rs375 apiece in reaction to the strong financial results for the December quarter.
Consolidated revenue rose by 33% year-on-year (y-o-y) to Rs504 crore and net profit by 78% to Rs82 crore. Higher volumes (up 13% y-o-y) and increase in gross gas spreads are mainly responsible for its improved performance in the December quarter. Gross gas spread is the difference between the selling price of gas, and the cost of procuring and supplying it. Gross spread rose to Rs5.40 per standard cu. m (scm) from Rs4 per scm on a y-o-y basis.
But then, spreads were expected to be good in the December quarter. That’s because of the restoration of supplies from the Panna-Mukta-Tapti fields towards the end of October. Also, GCCL had hiked the base price of gas that it sells to its industrial customers by 16% from 1 December. Industrial customers account for 83% of the company’s gas volumes.
Spreads in the December quarter are higher than the Rs3.70 per scm in the September quarter, when the proportion of RLNG (regassified LNG) increased to about 45% in the firm’s total gas sourcing portfolio, primarily due to supply disruption. In the December quarter, RLNG accounted for about 30% of GGCLs’ total sourcing portfolio, and the rest came from indigenous sources (which is comparatively cheaper).
GGCL says the trend of higher gas cost due to the higher share of RLNG in the total portfolio is expected to continue in its sourcing mix. Accordingly, investors must take into account higher raw materials costs led by higher RLNG prices (linked to crude oil prices) in the current quarter. This means that spreads should see some correction from the December quarter levels.
Better spreads led to strong operating performance, with profit margin improving to 25%, which is higher than the 22% margin that the firm reported for CY10. Analysts maintain that the December quarter operating margins are on the higher side and should taper in the current quarter.
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First Published: Wed, Mar 02 2011. 09 28 PM IST