IGL, MGL, Gujarat Gas: Decline in Asian spot LNG price to aid earnings prospects
- IGL, MGL, Gujarat Gas: The share prices of these Gas distribution companies have remained volatile on mutiple concerns. The Decline in spot LNG prices however are expected to aid prospects. Apart from margin benefit, gas supplies will become competitive compared to other industrial fuels
Indraprastha Gas Ltd (IGL) , Mahanagar Gas Ltd (MGL) and Gujarat Gas share prices have seen volatility in the recent past. The Mahanagar Gas share price that had outperformed peers during past one year , however declined almost 10% in a month on concerns of its exclusivity in operations in the Mumbai region coming to an end.
Indraprastha Gas on the other hand has seen elevated concerns on rising EV (electric Vehicle) penetration in Delhi NCR (national capital region) impacting CNG demand. For Gujarat gas the competition it faces in Morbi industrial cluster from cheaper propane supplies have led to impact on share prices.
Indraprastha Gas and Gujarat Gas share prices are also almost flat over last month
Nevertheless, the declining sport LNG (Liquified Natural Gas) prices could prove to be a good news and trigger the share price. The lower LNG prices will mean lower input costs and hence higher margins.
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Due to weak demand and excessive inventory in both Asia and Europe, the price of Asian spot LNG has dropped to a 3-year low of about $ 8.3 per mmbtu (million British Thermal units), or 10% of Brent (compared to the historical average of about 15%), suggest the JM Financial Institutional Securities report. The price of European gas is likewise lower, at about $ 8–9% per mmbtu. The price of US Henry Hub gas also dropped to $1.9 per mmbtu as per JM Financial analysts and was helped by a brief halt in the approval process for new LNG export facilities and a fall in local demand.
The same is good news for Gujarat Geographical Areas . Gujarat Gas for significant part of its gas supplies is dependent on imported LNG cargoes. Hence decline in spot LNG prices should be positive for Gujarat Gas . Similarly while Indraprastha Gas also fulfill its gas supply requirements from imported gas cargoes, though gets good allocation from domestic gas too.
Not surprising analysts at JM Financial say that Sustained moderation in Asian spot LNG price is positive for all gas companies, particularly for CGD companies like Gujarat Gas and Indraprastha Gas (given their 20-30% dependency on spot LNG). The lower Spot LNG as per analysts will lead to gas supply prices becoming much more competitive compared to alternative liquid fuels in the industrial and commercial segment. further more it will somewhat offset the lower allocation of inexpensive APM gas (domestic) for the CNG (compressed natural gas) or domestic PNG (piped natural Gas) segment.
The adoption of CNG for city has distribution remains consistent, pointed analysts at Antique stock Broking, with good adoption seen in private vehicles (except during February) . Adoption of goods vehicles will continue to be a crucial indicator going forward as per analysts for the sector's volume growth to pick back up. The margins are mostly unchanged. Analysts at Antique Stock Broking say that they remain cautiously positive on the sector as CNG arbitrage versus petrol or diesel vehicles remains attractive. Gujarat Gas is their preferred pick in the space
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions
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