Gujarat Gas Co. Ltd (GGCL) announced on Tuesday that its majority shareholder, BG Group Plc, has started the initial process of evaluating the potential sale of its shareholding in GGCL. The BG Group holds a 65.12% stake in the company.

What does this development mean for GGCL? It all depends on who will buy BG Group’s stake. Analysts point out that if a domestic buyer comes in place of BG Group, then the premium that GGCL enjoyed because of BG Group would be hit to an extent. Also, more important for the stock is the price at which the divestment happens.

Meanwhile, increasing gas costs as a result of higher cost and proportion of regasified liquefied natural gas (LNG) in the firm’s total gas sourcing portfolio have affected GGCL’s financial performance in the quarter ended September. But that was more or less on expected lines. This time, the depreciation of the rupee, too, adversely affected the results.

Also See | Quarterly performance (PDF)

Accordingly, profit margins have taken a hit. For instance, operating profit margins slumped sharply to 18% in the September quarter from as high as 24% in the preceding three months. Gross gas spread fell to 4.70 per SCM (standard cubic metre) from 5.90 in the June quarter. Gross gas spreads were higher in the June quarter, as higher realizations were not matched by a proportionate increase in the gas sourcing costs.

Analysts say profit margins are likely to be under pressure as incremental volume will come from high-cost LNG. Further, a declining rupee could add to the woes.

For the September quarter, consolidated revenue rose by 11.5% over the June quarter to 643.5 crore, while net profit declined by 16.4% to 80.47 crore. Revenue growth was driven by better price realizations led by price hikes.

Since the beginning of this calendar year, shares of GGCL have outperformed the BSE-500 index. One of the key concerns the company faces is rising LNG costs as that could put pressure on profitability.

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