M&A activity rises in city gas distribution segment2 min read . Updated: 22 Dec 2020, 12:11 PM IST
- Covid’s impact on sales and growth has forced many firms to sell to bigger entities
City gas distributor Torrent Gas Pvt. Ltd is close to buying Mathura-based Sanwariya Gas Ltd for around ₹140 crore, a person aware of the matter said, as consolidation continues in India’s city gas distribution (CGD) sector.
This is the fourth acquisition in the last one year for Torrent Gas, part of Gujarat-based Torrent Group, after buying Mahesh Gas in Pune from the Mahesh Group, and Siti Energy in Moradabad and Dholpur from the Essel Group.
“Acquisition of Sanwariya will give Torrent a ready access to a gas pipeline network of 500-km and seven compressed natural gas (CNG) stations to sell gas to 15,000 vehicles and sell piped gas to 5,000 homes and 125 factories. Torrent on its own would have taken nearly a decade to set up this network," said the person cited above, the chief executive of a city gas distributor.
CGD refers to transportation or distribution of natural gas to consumers in domestic, commercial, industrial, and transport sectors through a network of pipelines.
Torrent Gas did not reply to an email till the time of going to press. A Sanwariya Gas spokesperson could not be reached for comment.
The move by Torrent Gas follows Adani Gas last month signing a definitive agreement to acquire CGD in three geographical areas—Ludhiana, Jalandhar and Kutch (East)—from a consortium led by Jay Madhok Energy. Adani Gas, which sold 37.4% stake to France’s Total Gas for ₹5,700 crore in February, has been bullish on the sector.
“If you look at the ability of CGD companies to pass on price increases in this segment, you will see that they have been able to protect margins, leading to healthy returns on investments for them," said Prashant Vasisht, vice-president and co-head, corporate ratings at ICRA Ltd. This has helped attract interest from private equity investors as well.
Since CGD is capital-intensive and it takes around seven years to break even, many companies lack the capacity to operate in the sector, analysts said, leading to consolidation in the space.
Added to this is the impact of covid-19 on sales and growth, which has forced the sale of many companies to bigger, established entities. “Small and standalone CGD players have been impacted by the lockdown imposed to contain the spread of coronavirus. Companies with a healthy balance sheet to bank upon have been able to absorb or sustain the loss though," the CEO of another CGD company said.
India has about 40 CGD companies, which together operate 1,500 CNG stations in the country; in contrast, there are over 60,000 fuel stations dispensing petrol and diesel. The share of gas in India’s energy mix is expected to rise to 15% by 2030, with the government’s push for creating a gas infrastructure. Companies are thus seeing a large opportunity in the sector, analysts said.