Is Indraprastha Gas better placed than Gujarat Gas?

Is Indraprastha Gas better placed than Gujarat Gas?

The proportion of RLNG (re-gasified liquefied natural gas) in the total gas sourcing portfolio of city gas distribution company Gujarat Gas Co. Ltd for 2010 has increased to 26% from 13% last year, according to the company’s investor presentation released last week. The remaining portion of gas is sourced from indigenous sources.

In the December quarter (which is the fourth quarter for Gujarat Gas, since it follows the calendar year), the contribution of RLNG in the total gas sourcing portfolio was as high as 37%.

The company’s gross gas spreads stood at a fantastic Rs5.4 per standard cubic metre (scm) in the December quarter against Rs4 per scm a year ago. Gross gas spread is the difference between the selling price of gas and the cost of procuring and supplying it.

This column wrote earlier this month that spreads should see some correction from the December quarter levels as the company expects the trend of higher gas cost to continue due to higher proportion of RLNG in the total gas sourcing portfolio.

Gujarat Gas’ operating profit margins stood at 22% in 2010 and the management now expects margins to be sustainable at 18-20%. Sales volumes for 2010 increased by 17%, helped by growth in the industrial customer segment, which accounted for 83% of the company’s gas volumes. Sales volumes growth guidance for the current year is 8-10%.

Gujarat Gas’ scrip delivered fantastic returns to investors and appreciated by a huge 70% in 2010. That does make the stock look expensive. Analysts now seem to be betting more on peer Indraprastha Gas Ltd (IGL) that, too, has seen a sharp appreciation (up 73%) in its share price in 2010.

Some reasons include the latter’s better valuations. According to Edelweiss Securities Ltd, in 2010, the price- earnings (P-E) multiple of Gujarat Gas stood at 18.7 times compared with IGL’s 17.4 times during the same period.

“GAIL (India) Ltd, Indraprastha Gas’ parent, has ownership/control over LNG import terminal and pipelines, which puts Indraprastha at an advantage. Point in case is that Gujarat Gas is yet to be allotted RIL (Reliance Industries Ltd) gas, whereas IGL is already receiving it," wrote analyst Niraj Mansinka in a note last week. Further, IGL’s operating margins are better than that of Gujarat Gas.

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