Gujarat Gas Limited (GUJGASLTD.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Gujarat Gas Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to the Company Secretary of Gujarat Gas, Mr. Sandeep Dave. Thank you, and over to you, Mr. Dave.

Thank you. Good afternoon, everyone. A very warm welcome to Q1 earnings call of Gujarat Gas Limited. I'm Sandeep Dave, Company Secretary and Head of Corporate Communication at GGL. Just to give you an update on our scheme of arrangement. The scheme of arrangement was approved by GSPC Group of Companies on 30th August 2024. The proposed scheme will eliminate layer structure of GSPC Group, promote business synergies and unlock value for stakeholders. The scheme is subject to various statutory and regulatory approvals. We have filed the scheme with BSE and NSE and also received no objection from BSE NSE. We also received -- filed the scheme with Ministry of Corporate Affairs in February 2025. We have requested and we are in continuous touch with MCA to expedite the process. The matter is under active consideration of Ministry of Corporate Affairs, and we are expecting approval of the scheme in Q3. Considering longer-than-expected time taken in completing MCA process, we have also simultaneously initiated process for obtaining approval from other regulatory authorities. Coming back to GGL to give a brief background about GGL. GGL is the largest city gas distribution company in India. GGL is operating in 27 geographical areas spread across 6 states and 1 union territory. We have a good mix of mature and emerging CGD areas. We have developed pipeline network of more than 43,300 kilometers, which provide natural gas to approximately 23.02 lakh households, more than 4,425 industrial customers and approximately 15,700 commercial customers. We also operate 830 CNG stations covering approximately 4 lakh vehicles per day. We are aggressively setting up CNG infrastructure as well as upgrading CNG infrastructure to promote use of clean and green fuel. We also started injecting biogas into GGL system. At Gujarat Gas, with a commitment of providing complete energy solutions that empower communities, business and industries and with an aim to become a total energy solution provider, the Board of Directors of GGL at its meeting held on 5th August has approved to undertake sourcing and sale of propane or LPG to industrial customers. This reiterates our commitment towards customer-centric approach. GGL aims to deliver affordable, reliable and cleaner energy by operating responsibly and performing with excellence while considering environment, social and government factors. As part of our commitment to ESG initiatives, we have taken various measures, which include hydrogen blending pilot project, which we have completed with 8% blending. Now we have initiated action for increasing blending level to [ 15% ]. We have embarked on major digitization drive across various business operations and processes. Our major contribution to the environment is by virtue of promoting use of gas for industrial customers. In Q1, we have reduced blending of approximately 11,242 metric tons of coal per day by providing green fuel. Further, through our CNG sale on various outlets, we have reduced combustion of approximately 3,295 kiloliters of petrol per day during the current quarter. At Gujarat Gas, we adhere to highest standards of safety and a strong culture of safety. GGL is an ISO certified organization for integrating -- integrated quality, occupational health, safety and environment management system. We build, operate and maintain a safe and reliable gas network in our areas of operation. With this brief background on GGL, I now request Mr. Dipen Chauhan to share business updates. Over to you, Dipen.

Thank you, Sandeep. Good afternoon, everyone. Let me first update on the domestic and commercial segment. We are seeing a positive growth in domestic segment. GGL's customer base is now more than 22.85 lakh domestic customers. GGL has added 36,000 commissioned customers in Q1 FY '26 and registered 39,000 customers in Q1 FY '26. Importantly, GGL has signed gas sales agreement with Bathinda Military Station for the supply of PNG to over 11,300 residential quarters and 230 facilities. The commercial segment is showing steady growth in connection numbers. We expect the numbers in the domestic and commercial segment to increase over the period of time as the new areas mature. GGL at present has a customer base of 15,700 commissioned commercial customers. Now let me update on Industrial segment. In the Industrial segment, sales volume were 4.71 mmscmd for quarter ended 30th June 2025, whereas the sales volume during the previous quarter was 5.03 mmscmd, an overall decrease of nearly 6%. As anticipated during the last earnings call, the reduction was mainly in Morbi volumes where customers opted to shift to propane from natural gas due to higher price differential. The average Morbi volume was 2.51 mmscmd and non-Morbi volume was 2.20 mmscmd. The Morbi volumes reduced from 2.87 mmscmd in Q4 FY '25 to 2.51 mmscmd in Q1 FY '26. The non-Morbi volume of 2.20 mmscmd for quarter ended 30th June 2025 has grown from 2.16 mmscmd during the previous quarter. That is an increase of approximately 2%. The non-Morbi volumes has grown by approximately 8% for same period in the previous financial year. The reduction in spot RLNG prices and crude prices during the quarter enabled GGL to reduce the prices in Industrial segment. The reduction also enabled GGL to maintain the price differential to propane, that is natural gas premium by INR 3.50 for us. The natural gas demand in Morbi is likely to remain low on account of upcoming Janmashtami festival in this quarter. In addition, persistent uncertainties related to tariffs and geopolitical dynamics continue to cloud the overall business outlook. We continue to monitor the various aspects affecting the volumes, namely price movements of spot RLNG and alternate fuels. and consumer goods demand across all our operating areas and shall adjust to such market dynamics so as to maintain balance between margins and volumes. Now let me update on CNG segment. GGL reported a strong performance in Q1 FY '26 driven by robust growth in CNG volumes and expanding infrastructure. CNG sales rose by 12% year-over-year with Gujarat recording a 10% increase and areas outside Gujarat delivering a notable 27% growth, underscoring GGL's success in deepening its presence across geographies. As of June 2025, the CNG vehicle base across GGL's network reached approximately 15.65 lakhs compared to 13.63 lakhs a year earlier, reflecting a solid 15% growth. CNG continues to offer a compelling economic advantage, being approximately 45% cheaper than petrol and 23% cheaper than diesel further reinforcing its attractiveness amid volatile fuel prices. During the quarter, GGL commissioned three new CNG stations supporting its commitment to expanding reach and improving strategically. CNG sales volume touched a record high of 3.72 mmscmd highlighting sustained demand momentum. Looking ahead, is well positioned to capitalize on the increasing shift towards cleaner energy. With ongoing infrastructure development, growing CNG vehicle base and strong customer adoption the company remains confident in maintaining its growth trajectory and strengthening its leadership segment. Finally, I'm happy to update that during Q1, we marked a significant milestone in our company's digital transformation journey also. With the sharp focus on innovation and operational excellence, we go for merger -- we have planned to strategically expand our enterprise resource planning ecosystem to incorporate additional key business functions and achieve the benefit of seamless integration across verticals. Along with this, the planned technology transformation of ERP will help to leverage advancement in AI-powered analytics and enhanced decision-making and risk management capabilities. On the operations, we have drawn a blueprint for implementing a robust and secure SCADA system to enable centralized monitoring and control active across all geographies. This scalable agile infrastructure is designed to support our evolving business dynamics and ensure responsiveness in a rapidly shifting global area. Thank you very much. Now I'll request our CFO, Rajesh Sivadasan, to take over, please.

Thanks, Dipen. Good evening, ladies and gentlemen. I welcome you to the earnings call for the first quarter of the financial year '25-'26. I'd like to thank you all for attending the call today. I trust you would have gone to the financial results for the quarter ended 30th June, along with the presentations, which we have uploaded on the website and the stock exchange. During the quarter, the company connected close to 35,000 new domestic connections, making the total PNG domestic connections more than 23 lakhs. In this quarter the company also invested close to INR 121 crores into the gas infrastructure. The company is also planning to incur annual CapEx in the range of INR 800 crores, INR 1,000 crores in this financial year. In terms of revenue of the company, which has registered, the revenue from operations stood at INR 4,065 crores during this first quarter against INR 4,615 crores in the corresponding quarter of the previous year. The company received an EBITDA by INR 579 crores in the first quarter against INR 574 crores in the corresponding quarter of the previous year. The profit after tax stood at INR 327 crores in the first quarter compared to INR 330 crores in the corresponding quarter of the previous year. The company's rupee per SCM EBITDA margin for this quarter stood at 7.17% against 5.75% in the previous quarter. The company's estimated EBITDA margin will be in the range of INR 4.5 to INR 5.5 for this current financial year. During the first quarter, the company has received around 100% allocation towards domestic segment and 41 percentage allocation to the CNG segment. Thus, we have an overall allocation of 51% to the priority segment of the government. The APM shortfall was met by the new well gas, the HPHT Gas, the long term and the spot volumes. Gujarat Gas continues to have a credit rating of AAA Stable and the short-term rating of A1+ from CRISIL, CARE and India Ratings. As requested by the investors, we have also uploaded the 12-monthly results of GSPC in GSPC's website. We'll now open the floor for Q&A session.

[Operator Instructions] The first question is from the line of Probal Sen from ICICI Securities.

I have three questions. Firstly, you just mentioned about the sourcing partially that 51% of your priority sector sales was met by APM. Can we get an overall percentage breakup in terms of sourcing of 8.88 mmscmb that we have done. Overall, how much gas is being sourced from which source in percentage terms or in volume terms, whatever is available. That was my first question.

So coming to your question, the gas from short-term contract is basically 34%. Long-term contracts is 38%, and the rest is all domestic gas. Majority of them that coming from APM and a new well gas.

Any -- how much of HPHT gas did we get in this quarter?

Close to 0.7 CMD...

HPHT?

Right, HPHT.

Right, right. So 51% shortfall that you mentioned, sir, would have been HPHT 0.7, 51% from APM and the balance would be from new well gas. Is that a fair way to look at it?

Hello. Can you repeat?

You said that, sir, on a blended basis, 51% of priority gas was from APM. And you just mentioned HPHT was about 0.7, so the balance would have been from the new well gas. Is that a fair way to look at it?

Yes, new well and spot also.

Got it. Fair enough, sir. The second question was, sir, about this new business initiative, the propane sourcing and sale that we are looking to do. I just wanted to understand, sir, how will this business model work and what sort of commercials are we looking at in terms of what is the advantage that we are bringing in, when other players are also already there that are selling and sourcing propane, particularly in Morbi, if you can just throw some more light on this.

So basically, the current consumption in Morbi is close to gas equivalent, if you see it is close to 7, 7.5 million out of which 1/3 is gas and 2/3 is propane. So total propane market, if you see is close to around 1,67,000 metric tons per month, we are basically targeting close to 25% of this market and what we intend to do is basically we want to become an integrated energy supplier for all their energy needs. So they don't have to shift from one supplier to the other. And the advantage that we think we can bring is basically we can help them reduce their working capital requirements since they already have some financial security already provided to us, which we can use if we are selling propane to them. So they don't have to basically rush to other suppliers with advance money and all those stuff.

[indiscernible] Sorry, please go ahead.

No, no, sir, you go ahead, sir. I'll come back. I mean please finish your answer. Sorry.

Basically, we are targeting a market close to 25% of the total market for the initial few months, maybe this financial year ending and then depending on how we -- what our experience is we can then scale it up further.

So where will we source this propane from sir, will we be basically contracting to the OMCs or importing it directly? How will it work, sir?

So we'll be importing it directly from the international markets.

Okay. So our pricing will therefore be competitive with any other supplier in the market?

So that's our strength basically we have been sourcing LNG since long through GSPC obviously. But that's our strength, and we hope to get propane from the international market at a lower price, which we can use to compete in the markets.

Right. Last question, sir, if I may squeeze in one more. You mentioned about the uncertain demand environment overall at Morbi itself. And given that, that continues to be there, any guidance you would like to give on volumes specifically from Morbi going forward for the next few quarters? On an overall exit rate, if you want to tell us for FY '26 for the company?

I think we are viewing the market. We'll continue to look at the market, but I think difficult to guess as to what the number would be, but we continue to look at it, and that's how I can -- that's how as of now, we can put it this way.

Our next question is from the line of Yogesh Patil from Dolat Capital.

Sir, you mentioned the current volumes of the Morbi on the propane side are the 5 mmscmd? And what we are targeting as Gujarat Gas at 25% of that? So 1.2, 1.3 mmscmd is the right volume to assume for the remaining period of the FY '26? Is that a correct understanding?

For propane?

Yes.

Yes.

Okay. So sir, if possible, what would be the margins on the propane distribution, that's one? And are you planning to do some CapEx in building this propane or LPG supply chain?

So there is no CapEx involved in this entire exercise that we are planning. So except booking for some capacities in the terminals, there is no CapEx involved.

Any guidance or any ballpark number, if you could give us on the margin side, what kind of margins you will make on the distribution of propane?

Very difficult to guess we are entering this business for the first time, difficult to give any numbers right now.

Will it be better than PNG Industrial? Would it be lower than PNG industry?

It would be difficult to comment on margin at this juncture. I think we will see -- it will evolve over a period of time, probably, it will be better placed to comment on margin once we have a good grasp of the market.

Sir, your PNG industrial business has marketing and infrastructure exclusivity protection, but you are entering into the propane distribution business where more than 5 players are already there. So apart from the working capital, is there any strategy where you can play and really gain the market share inside the Morbi?

I think it's not only Morbi we are looking at. I think propane is being consumed by not only Morbi, other areas also. So let's things unfold in the future. We'll get back in the next quarter by the time we'll be trying to sell propane in the market, so we'll be having better clarity with respect to margins, et cetera. I think that will be the right time to tell you what strategy we are adopted.

Okay. Last one, sir, have you applied for the propane distribution license towards the regulator? Any update on that side?

We have to get a credit rating from the agency, which we have got.

Okay. The next question is from the line of Maulik Patel from Equirus Securities.

Couple of questions. Can you just step in on the GSPC performance in Q1 FY '26. What kind of volume did on the trading side and trading profit or the PAT at GSPC.

Maulik, we are yet to go to the Board with respect to that. Mostly later it will be end of this month. So once that is that there, it will be available on the website once we have got the Board approves it.

Got it. Second question is on this long-term volume we have from the Gujarat Gas and digi I understand there is significant revision is happened in one of the contracts and the pricing in one of the contract has come down. Also, you recently reduced the price in Morbi by almost INR 3.3 per scm. With this both offset each other, and the reduction in the digi contract and the price reduction in Morbi, will this offset each other?

Well, I think both are not related as such, but the reduction propane selling price is more on account of reduction in crude prices as well. And obviously, we have to link our selling price to the alternate fuel, which is propane in this case. I think -- yes, that's my answer to your question right now.

Okay. So in a way that currently, the propane for the September month is significantly lower at about $520 per ton compared to $518, $519 used to be for the month of August. The next 2 months, there is going to be likely a volume pressure in Morbi. We did around 2.5 mmscmd in Q1, so Q2 is actually lower than that everything open will see a significant sharp correction, plus there's a seasonality also there because in this August, September month, Morbi generally goes for some kind of production shut down because of the festival. So Q2 volume will be lower than the Q1, right?

Q2 volumes would be, yes, lower because of the Janmashtami and then the slowdown because of festivals and all.

What's your view on the non-Morbi volume. I think it has stated around 2.2 mmscmd kind of number right and been building up well. Do you see any kind of incremental growth in non-Morbi volume?

Yes, I think we are seeing a good uptick in non-Morbi volumes. We are in touch with various bigger kind of consumers whom we are now targeting them with some fixed-term contracts rather than having contract which had termination provisions. So we are going for long-term contracts in non-Morbi regions like Vapi, Valsad and other places. We are in touch with certain bulk consumers, and I think we can -- we see a strong growth in non-Morbi region.

Just last question on the CNG side. What's the progress on that scheme. I think I understand that it was some 60 or 70 CNG stations come under this FDODO scheme, right? But if I see that over this quarter and in Q1, only two additional stations has been set up right. But at the same time, the volume growth or probably if I look at Y-o-Y basis, it's again around 20, 30 CNG stations have been added. But if I look at the growth has been very strong, it almost around 11% kind of CNG volume growth. Is it more that the efficiencies coming into the picture in terms of a higher throughput at CNG stations which is driving this growth?

Yes, please. And the most important thing is increasing the number of CNG vehicles in the state. I think almost nearly 2 lakh vehicle has been added in the last few months or I can say 1 year. And the same way we are adding more and more CNG infrastructure also. There is a good asset utilization in existing stations. And with these new CNG stations are coming up we are expecting that vehicle growth will be better than even whatever happened in last year.

So you mean to say that last year, we did around 11% kind of CNG growth. The FY '26 CNG growth can be higher than that?

Possible. That is possible because we are planning to add under the FDODO scheme there are -- we have 70-odd stations are almost in the process of construction. And I think before this December, we'll be able to add at least double-digit CNG stations under this scheme.

Our next question is from the line of Amit Murarka from Axis Capital.

Just to get it clear, so Morbi you said will be lower in Q2 than Q1. Like what would be generally the expected run rate?

Can you get back? We cannot get that point.

No, you said Q2 Morbi volumes will be lower than Q1. Q1 was 2.51 mmscmd, as you said. So could you just give a guidance as to what could -- what is the number that we can expect on Q1 and Q2 case for the current run rate that you see?

Could be in the range of 2.3 to 2.5 mmscmd.

Sure. Also, like industrial price, I think, has been cut by about 3.5%. And what is the price right now after this cut?

43.330.

So I was just wondering that basically precut, you were at 46.8%, which is more or less flat at Q1 was flat at Q4 and even CNG and domestic PNG are flat in Q1 to Q4. So just I was wondering like the realization had a bit of a drop on a Q-o-Q basis. So what would that be on account of then.

I think realization was more in this quarter.

I don't know because if I do kind of revenue driver, you might get a lower realization.

I don't think so.

Okay, sure. And just lastly, on GSPC, could you give FY '25 financials.

so it's already on the website.

Next question is from the line of same from S. Ramesh from Nirmal Bang Equities.

So if you're looking at the LPG propane distribution business, have you got the line of sight in terms of sourcing and the customers who are actually willing to give you a contract, how is that progressing?

Basically, we are in touch with various international supplier for sourcing propane. As far as customer base is concerned, those are our existing customers, and we are very confident that we are sourcing propane.

Okay. So if you look at the Slide 12 and 14, I have some questions there. So the Slide 12 gives the details of the spread of the geographic areas. So can you tell us in terms of the potential for ramp-up in volumes in the next 2 years, which are the GA or areas where you see growth potential -- and which are the areas where you see a quick ramp-up to EBITDA breakeven and positive contribution to ours.

Yes. Ladies and gentlemen, the line for the management has been disconnected. Please stay connected until we reconnect them. [Audio Gap] Ladies and gentlemen, the line for the management has been reconnected, Ramesh sir. Please go ahead. You can continue. The management line is connected now.

Yes, I think the call got disconnected and we were discussing the LPG in propane sourcing. We can get back there. So I had a couple of questions on Slide 12 and 14. In Slide 12, you have given the breakup of the GAs across the 27 GAs and the different cities. So you can give us a sense in terms of where you expect a quick ramp-up in terms of volumes or peak volumes? What is the number? And which are the areas where you see profitable operations in the next 1 or 2 years, and the second question is on the Slide 14, where you have given data on the DODO stations, franchise stations. So in the past, whatever franchise stations you have had, how much of CNG volume is coming from these franchisee stations? And what is the distribution cost for the existing franchisee stations? These are the two thoughts I would like to have from you.

Will you please repeat the last question?

Yes. The first question was on Slide 12 across the different GAs. Second question was on Slide 14, where you have given the breakup of the different types of CNG outlets, which includes the franchisee outlets, which I presume will be similar to your DODO outlet. So if you can share the current performance of the franchisee outlets in terms of the share of the CNG volume and what is the kind of distribution costs you have for these franchisee outlets, it will be useful. Plus how the ramp-up in the DODO station will help you in terms of volume growth and the cost of that business?

There is a -- I'll just say the distribution of the CNG station, which if you see that...

So we have the distribution of the CNGs in that. What I'm asking is the franchisee stations of 95, say in '24 and 104 in '25 What is the per kg CNG volume or the overall aggregate volume to? And what is the distribution cost for these specific stations compared to your overall distribution costs, that will help us get some idea about the cost of the DODO station, how you can generate some earnings and cash flows from that, right? So just to understand the economics of the current franchisee models.

And I think the current franchise model in terms of a commission basis for the sale of CNG, which happens over there. It's I think, is in the range of INR 3 to INR 4 per kg. That's what the commission we are giving to the franchisee. And for the OMC also, the model is -- the commission is same. But in the FDODO scheme where CapEx and OpEx both by the franchisee, we are giving INR 8 per kg for online stations and nearly INR 10 for DODO booster station.

Okay. So these existing franchisee stations what will be the CNG volume per day or aggregate volume for the quarter. Can you just share that with us? For the existing franchise stations?

So we don't have the exact specific for the franchise, but on an overall basis, we averaged around 3,000 kg per day.

So would it be similar to that in terms of the location....

Yes, for the new FDODO people coming in, they have looked at it in those range only from INR 2,000 to INR 3,000 would be the starting process. And then going forward, increasing based on the traffic, which is there.

Okay. So if you go back to that Slide 12 question, if you can give us some thought in terms of where you expect the biggest bang for the buck on the growth in CNG and PNG across 27 GA in terms of over the next 2 years, where is the visibility? And what is the kind of ramp-up in terms of EBITDA breakeven and progressively profitable operations. Where do you see that happen across GAs?.

You are asking too many things in one thing, but I'll just try to summarize that. Basically, the growth is practically happening in Ahmedabad rural area, the Thane area and the Dahej and Surat areas, wherein the CNG, practically, we are getting a much bigger more than 10% to 15% growth is happening over there. With respect to the margins, yes, we'll be having the -- you know the margins which we are earning on the CNG. So that margin we'll be protecting those margins going forward. But yes, the APM gas allocation will definitely affect the EBITDA margin going forward -- yes.

Sorry, please go ahead.

No, you tell me.

Yes. So if you look at the current CapEx and the commercialization of the GAs and the increase in depreciation when do you think you'll be able to generate EBIT to cover the depreciation and generate positive ROCE double digits across all the 27 GAs, what is the time line one should expect?

No, I think we have -- with respect to the CNG statements, we cover it between 3 to 4 years we cover the part for the POCO stations. And see in the franchising model, the rest of the things are our. In the OMC model there the different models have different ROEs and the payback periods.

No, I'm not asking the -- I'm asking for the new GA where you're committing a lot of CapEx. Your depreciation will go up, right? Once they are commercialized. So from the time you commercialize, what is the time line and when do you expect to get the double-digit ROCE.

It will take 4 to 5 years because these are all, for example, the Punjab arae and all we have new developing areas. So we expect that 3 to 4 or 3 to 5 years is the time period where in which we'll be able to recover the things.

Our next question is from the line of Achal Shah from AMBIT Capital.

Sir, I just wanted to know that since currently propane is favorable. But if RLNG is favorable in the long run, what would be the industrial volumes? Where could the industrial volumes reach a ballpark figure in mmscmd?

So if the LNG is favorable, which we hope to -- which we hope it to be very soon. I think we can easily do 6 million in Morbi and close to 2.5 million in non-Morbi.

Got it. And sir like shifting would take some time, like when RLNG is -- like becomes attractive, how much time would it take if it continues to remain attractive for like 6 months, 1 year or 2 years. So that volumes will start increasing from next month onwards or it would take some time?

I think in the short term, there could be -- there are some issues, but I think we expect a lot of LNG -- new LNG supplies coming into the market from countries like Qatar, U.S. and Mozambique and other countries. So that will put pressure on the -- that will increase the supply and basically we put downward pressure on the prices. So we are hopeful. I think in the shorter term, there are some issues. But I think we are hopeful that very soon we'll be rating new. I mean we'll be basically able to sell more in Morbi and non-Morbi regions.

Got it. Sir, just second and the last question is this press release by PNGRB, where they have reduced 3 zone to 2 zones. What will be the impact if positive or negative for like Gujarat Gas on margin front?

Based on the present tariff you are talking?

So sir, like currently, there are 3 zones for tariff for transmission that will -- like by a few -- after a few months, that will move to like 2 zones. So after that, what will be the impact on our margins since some volumes will go to Zone 1 and Zone 1 rates will increase and which will be like expensive than Zone 2. So have you done any such analysis?

No, see, for us. Based on the present tariffs, which are that there will be a positive impact for us.

So sir, I'm assuming a majority of our volumes are currently in Zone 2. Is it? Or...

Yes, it is in Zone 2, you are right.