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

Ladies and gentlemen, good day, and welcome to the Gujarat Gas Limited's Q2 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 day, everyone. A very warm welcome to Q2 earnings call of Gujarat Gas Limited. I'm Sandeep Dave, Company Secretary and Head of Corporate Communication at Gujarat Gas. Just to give you an update, since our last earnings call on the composite scheme of arrangement, the Board of Directors have approved the scheme of arrangement on 30th August. Thereafter, we have approached Ministry of Corporate Affairs and the Ministry has directed convening of meeting of shareholders of GSPC, GSPL and Gujarat Gas. We are happy to inform that the Board of -- the shareholders of GSPC, GSPL, Gujarat Gas, have approved the scheme with thumping majority. 100% of GSPC shareholders and 99.99% of GGL and GSPL shareholders have voted in favor of the scheme. After approval of the shareholders, we have filed Chairman's report and confirmation petition with MCA. The proposed scheme will eliminate layer structure of GSPC Group to promote business synergy and unlock value for its stakeholders. The scheme is subject to various statutory and regulatory approvals. We have received no objection from BSE, NSE and PNGRB. The matter is under active consideration of MCA, and we are expecting approval of the scheme by December 2025. Coming back to GGL, to give a brief background about GGL. GGL is the largest city gas company in India. It 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 a pipeline network of more than 43,900 kilometers, which provide natural gas to approximately 23.44 lakh households, 4,429 industrial customers and 15,780 commercial customers. We also operate 834 CNG stations serving 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 have also started injecting biogas into GGL systems. GGL aims to deliver affordable, reliable and cleaner energy by operating responsibly and performing with excellence while considering environment, social and governance factors. As part of our commitment to ESG initiatives, we have taken various measures, which include hydrogen blending pilot projects, which we have completed with 8% blending. 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 Q2, we have reduced burning of approximately 10,385 metric tons of coal per day. Further, through our CNG sales on various outlets, we have reduced combustion of approximately 3,282 kiloliters of petrol per day. We have been conferred awards by our regulator PNGRB in 2 categories: PNGRB Excellence Award 2025 in the category of safety, integrity and technical excellence in CGD for Ahmedabad GA; PNGRB Excellence Award 2025 in the category of Overall Best Performance in the CGD for Anand GA. At Gujarat Gas, we adhere to highest standards of safety and a strong culture of safety. GGL is an ISO certified organization for 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. First, I'll update on the Domestic and Commercial segment. We are seeing a positive growth in the Domestic segment. GGL's customer base is now more than 23.28 lakh domestic customers. GGL has added 0.27 lakh commissioned customer in Q2 FY '26 and registered 0.34 lakh customers in Q2 FY '26 despite of monsoon season. GGL has signed a gas sales agreement with Bathinda Military Station, which is one of the largest military base in India for the supply of PNG to over 11,300 residential quarters. The Commercial segment is showing a steady growth in connection number. We expect the numbers in the Domestic and Commercial segment to increase over a period of time as the new areas mature. GGL at present has a customer base of 15,700 plus commissioned commercial customers. Now let me update on the Industrial segment. In the Industrial segment, sales volume were 4.34 mmscmd for the quarter ended 30th September 2025, whereas the sales volume during the previous quarter was 4.71 mmscmd, an overall decrease of approximately 8%. The average Morbi volume during the quarter was 2.13 mmscmd and non-Morbi volume was 2.22 mmscmd. The Morbi volume reduced from 2.51 mmscmd in Q1 FY '26 to 2.13 mmscmd in Q2 FY '26. As stated during the last call, the Morbi volumes were expected to be lower due to the Janmashtami festival. The non-Morbi volume of 2.22 mmscmd for quarter ended 30th September 2025 has grown from 2.20 mmscmd during the previous quarter. That is an increase of approximately 1%. The non-Morbi volume has grown by approximately 8% as compared to the same period, which was 2.05 mmscmd in the previous financial year. In fact, the non-Morbi volume has grown from 1.92 mmscmd during FY '23, '24 to 2.21 mmscmd in FY '25, '26, that is a growth of almost 15%. The reduction in spot RLNG prices and crude prices during the quarter enabled GGL to reduce the prices in the Industrial segment, which was by INR 3.25 per SCM with effective from August 1, 2025. The reduction also enabled GGL to maintain the price differential to propane, that is natural gas premium by INR 4 to INR 5 per SCM. While the prices of alternate fuel propane has reduced in recent times, we expect the same to increase during the winter months. This may reduce the gap between natural gas and propane prices. However, in the short term, the Morbi volume are expected to remain lower. We continue to monitor the various aspects affecting the volumes that is price movement of spot RLNG and alternate fuel 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. Finally, let me update on CNG side. GGL reported a strong performance in Q2 FY '26 driven by robust growth in CNG volumes and expanding infrastructure. CNG sales rose by 13% year-over-year with Gujarat recording an 11% increase and areas outside Gujarat delivering a notable 26% growth underscoring GGL's success in deepening its presence across all geographies. As of September 2025, the CNG vehicle base across GGL's network reached approximately 16.22 lakhs compared to 14.12 lakhs a year earlier reflecting a solid 15% growth. CNG continues to offer compelling economic advantage being approximately 45% cheaper than petrol and 23% cheaper than diesel further reinforcing its attractiveness amid volatile fuel price. During the quarter, GGL commercialized 4 new CNG stations supporting its commitment to expanding reach and improving accessibility. CNG sales volume touched a record high of 3.934 mmscmd, highlighting sustained demand momentum. Looking ahead, GGL is well positioned to capitalize on the increasing shift towards clear energy with ongoing infrastructure development, a growing CNG vehicle base and strong customer adoption, the company remains confident in maintaining its growth trajectory and strengthening its leadership in the CNG segment. Finally, I'm happy to update that during Q2 of FY 2025-'26, we marked a significant milestones in our company's digital transformation journey. With a sharp focus on innovation and operational excellence as we go for merger, we have planned to strategically expand our ERP 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 advancements in AI-powered analytics and enhanced decision-making and risk management capabilities. On the operations front, we have drawn a blueprint for implementing a robust and secure SCADA system to enable centralized monitoring and control across all geographies. This scalable, agile infrastructure is designed to support our evolving business dynamics and ensure responsiveness in a rapidly shifting global environment. Furthermore, we have identified automation opportunities across multiple business processes that currently fall outside the scope of our ERP system. These initiatives are designed to strategically address operational challenges and enhance overall process efficiency through seamless integration and robust monitoring mechanism. Thank you very much from my side. Now I would like to request our CFO, Mr. Rajesh Sivadasan, to take over. Rajesh?

Thanks, Dipen. Good evening, ladies and gentlemen. Myself Rajesh Sivadasan, CFO and Head of Investor Relations at Gujarat Gas. On behalf of the entire team of Gujarat Gas, I extend a warm wishes for our shareholders and our customers. I welcome you to the earnings call for the second quarter and the first half of the financial year '25-'26. Thank you for joining us today. I trust you have gone through our financial results of the quarter ended 30th September, along with the press release and the investor presentations, which are available on our website and the stock exchange. During the quarter, the company has added close to 42,400 new domestic PNG connections. Our pipeline infrastructure now spans approximately 43,900 kilometers of PE and steel networks, which continues to be the key driver for our growth. In the first half of the financial year, we have invested approximately INR 282 crores in the gas infrastructure. For the full financial year, we plan to incur a capital expenditure of approximately INR 800 crores. The revenue from the operations stood at close to -- sorry, stood at INR 3,979 crores compared to INR 3,949 crores in the corresponding quarter of the previous year. The EBITDA was INR 520 crores against INR 553 crores in Q2 of the previous year. The profit after tax amounted to INR 281 crores compared to INR 307 crores in the same period of the last year. The EBITDA margin per SCM was 6.54% versus 6.86% in the corresponding quarter of the previous year. For the financial year '25-'26, we estimate an EBITDA margin in the range of 4.5% to 5.5% per SCM. During the second quarter, we received 100% allocation for the Domestic segment. However, there was a 64% shortfall in the CNG segment, resulting in an overall shortfall of 51 percentage in the priority segment. The APM shortfall was mitigated through allocations from the New Well Gas and HPHT gas and sourcing, and we also source gas from the spot and long-term contracts. The allocation of the New Well Gas for the Q2 for the financial year '25-'26 was approximately 0.44 mmscmd down from 0.54 mmscmd in Q1. Gujarat Gas continues to maintain a strong credit profile with a AAA rating from CRISIL, CARE and India Ratings. As requested by our investors, we have uploaded the financials of GSPC for Q1 in our GSPC website. You can go through the same. Now with this, we open the floor for a Q&A session.

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

The first question was more a small clarification. What was the propane to gas differential that was mentioned? I could not catch the number exactly in terms of rupees per SCM in Q2 and currently, if you can give both the numbers.

It's in the range of INR 4 to INR 6 per SCM.

That is in terms of propane being at a discount to gas. Is that correct, sir? Hello?

Yes, please.

Yes, I was saying that is the discount that propane has against gas at this point of time.

Yes.

So sir, that being the case, you already did mention that Morbi is going to remain muted in the near term. But can there be at least some marginal improvement after the festival season in Q3 and Q4 that we can look at in terms of the absolute numbers for Morbi?

As the winter months will start, I think we will face a good competition from propane pricing.

Okay. The other question was, sir, if I look at the ex Morbi volume, I think that has remained in a relatively narrow range of between 2.1 to 2.2 mmscmd. Now if I look at the kind of new areas that we have brought on stream and that is definitely visible in the kind of momentum we have in the CNG and Domestic segment. But sir, just wanted to understand the industrial and commercial potential from, sir, all of the new areas that we have brought on stream over the last 3, 4 years, can we expect any meaningful delta to come in this portion of the industrial volumes over the next maybe 12 to 18 months or even longer?

Yes, we are expecting because if you look at our sum of the GAs where we are reaching by our steel pipeline, if I have to give the -- if I name a few GAs like Ahmedabad Rural, DNH and some portion of Thane also, where we are planning to reach to industrial pockets with our steel pipeline, we are expecting a good amount of volume increase to be precise, industrial volume increase in these GAs.

Sir, any time line you would want to put on that in terms of how we should sort of build that number?

I think we are expecting in the range of 2 to 3 lakh SCMD in these areas in at least 18 months.

Right. And in terms of the announcement that was made in the last quarter that you are also now looking at entry into the propane sale and distribution market. Any color you would like to throw sir, in terms of how that is progressing? Any updates that can be shared?

Good afternoon. This is Chintan Shah from sourcing team. Thanks for asking this question. Actually, we have been working in this direction quite a lot, and we are currently in discussions with capacity providers at both the ports Pipavav and Kandla. And we are in very advanced discussions with these service providers. In addition to that, we have also initiated discussions with the fleet providers for arranging the last mile logistics. And we are also in advanced discussions with international propane suppliers. We are discussing term sheet and figuring out what suits are basically a requirement. So we are discussing spot as well as term kind of proposals with them. As of now, we are under discussion and probably in the next few months, we'll get some good breakthrough in this.

Understood, sir. One last question, if I may, just a housekeeping question. The CapEx guidance for FY '26 was shared at about INR 800 crores. Can you kindly share a similar guidance for FY '27, if possible?

I think FY -- see, FY '27 would be a year wherein the new company -- the new firm would be there. So if you only look at CNG and PNG, yes, the guidance would be around the same INR 800 crores to INR 1,000 crores will be investments in this area. For the rest of things which we will be coming back to you.

The next question is from the line of Achal Shah from Ambit Capital.

Sir, am I audible?

Yes, please.

Sir, just wanted to know one data point. So if you can share the CNG realization per kg or per SCM from FY '20 to FY '25, that would be helpful, sir?

You mean the sales price?

No, sir, CNG realization -- average CNG realization per kg or per SCM?

I think margins, we are disclosing on a company level. We are not segmenting the margins and disclosing.

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

Just wanted to know what was the Morbi volume in Q2? And what is the run rate currently?

Morbi volume is around 2 mmscmd.

Sorry, 2?

Yes.

Okay. And run rate?

1.7 to 1.8 that's what is the rate.

Got it. And the PNG versus propane gap of INR 4 to INR 6 that you mentioned was for Q2? Or that's the current gap that you mentioned?

That was for Q2, please.

And currently, it would be how much?

It will be less than, I think, Q2, which will increase in the coming months, but in the range of INR 5 to INR 6.

Sure. Also lastly, like what is now the time line for completion of the entire scheme? Earlier, I think you had mentioned October, if I'm not wrong?

We did mention that we'll do it in last quarter. That's what the response was from management in the last earnings call. We maintain that. We'll be completing it by -- we expect that MCA hearing will get over and we'll get a final order from MCA by December 2025.

Right. And the entire process in terms of, let's say, relisting of GSPL, that will take how much more after that?

Should typically take 2 to 3 months kind of time frame once we have got effective date on place.

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

Just 2 questions. One, what kind of volume visibility do you expect in a Morbi market, particularly on the South Gujarat side and the newer geographies?

We are expecting at least 2 mmscmd in Morbi market and slightly higher than that in non-Morbi markets.

So this is what volume you are doing currently, right? I'm saying that within a year or 2, as your network expand in newer geographies, I understood [indiscernible] you're looking this has an additional volume or existing volume?

No, no, no. That I think I've answered for the next quarter or I think this year. But I think we are planning to add at least 0.5 million across the market.

Okay. So across both non-Morbi and newer geo, you're adding to around 0.5 mmscmd volume next year possibly?

Yes. Yes.

Got it. And this group has done one LNG tie-up with Qatar that was a couple of weeks back. Can you just share the rationale and thought process and already group has done one more contract sometime in the beginning of this calendar year for 0.4 million tonnes, so what's the rationale for that? And I mean today, we are doing around 12 mmscmd or 11 mmscmd volume on the trading side, why this number can go up after this addition of the new supply contract?

I'm Chintan Shah from sourcing team. Thank you for asking this question allow, Maulik bhai. As you are rightly aware that we have done recent contract with Qatar Energy. As the press release says, the volumes are up to 1 mtpa and the contracts volumes -- some volumes begin in 2026 and the term for the contract is for 17 years. The most important thing we need to take note of here is like this is a long-term contract and the volumes in '26 when the market conditions are tight, will be at long-term prices. So as this volume kicks in, it will help group to cater to their customers at a more competitive pricing proposals, and it will bring in more, what do you say -- help in better realizations of margins. The second question was regarding the 0.4 mtpa that we have tied up with another supplier. So as you are aware that it is on Henry Hub index. At that point in time, the demand in the domestic market was for that kind of a product. So GSPC brought in that product, and they have sold a large amount of that volumes in the domestic market. And those volumes will begin in '26, '27 with the downstream customers. So that will again help us in building the portfolio for the group.

Got it. So will this help to increase the overall trading volume, which has been in the range of around 10 to 12 mmscmd over the last couple of quarters. Once this incremental, I think, it should expand your kitty, right, overall volume?

Yes. So bringing in more competitively priced LNG volumes will help us expand our kitty. Currently the problem is with the prices of propane and the LNG prices, which are actually at 17%, 18% currently and propane is at around 12% linkage of Brent. So once this scenario changes, probably we expect that some improvement in this scenario from April 2026, so first quarter of '26, '27, then probably we can see more volumes from Morbi coming in our portfolio again.

The next question is from the line of Vikash Jain from CLSA.

Just wanted to check when we are doing our basic analysis of the propane business, do we get a sense that this business could -- over the last few quarters or so have seen margins, players making margins around INR 10, INR 11 per SCM or so or it's much lesser than that in terms of gross margins that I'm talking about. Is that kind of a margin expectation in the ballpark or it's far too optimistic?

I think the number is too optimistic. We don't see this kind of numbers to be realized in that particular segment. It would be much lower.

So sir, just wanted to understand if we ourselves will offer a more expensive product as well as a cheaper product, then what will be the incentive of the customer to buy the expensive product? They would obviously want -- are we basically kind of pushing for a quicker move away from natural gas into propane for our customers in Morbi?

So basically, for next 2 years, there is a challenge unless and until we see the wave of LNG from new sources coming into the market, there will be a challenge. So to address that particular challenge, probably we have strategically taken this decision to enter into the propane business. So doing this particular business during first 2 years will help us bring in our customers in our portfolio, they will remain with us. And in addition to that, we are also working on a strategy wherein we can bring in more competitively priced LNG, which will -- I think, which would be able to compete with propane prices across the year, so that in long term, we can offer a product where customers will remain on gas with us.

So say, assuming that in about a couple of quarters' time, all the required tie-ups are in place and we start doing propane, is it fair to assume that we expect a large part of this 2 mmscmd customers who are buying natural gas to shift to propane, even although still staying our customers? And would you say that maybe you can garner even more than 2 mmscmd, the ones whom you would have lost to propane as becoming your customer? So it might be dilutive to margins, but it will be offset by higher volumes.

Yes. But the idea is not to market propane to our existing customers. It's to bring in the customers that we have lost.

Okay. Okay. And yes, I think other than that, in terms of margins, we've had a very strong 1Q. And should we expect that margins sustain in this 5.5%, 6% kind of a range or any guidance on margins in this -- for this coming quarter and maybe in the medium term that we are targeting?

I think we have already given the guidance figures. We are sticking to the old guidance of 4.5% to 5.5%.

[Operator Instructions] The next question is from the line of Nitin Tiwari from PhillipCapital India.

So sir, can you also provide a guidance on volume, very specific guidance for FY '26 as well as '27 like you've provided for the margins?

Yes. I think if you look at our portfolio, our portfolio is dominated by industrial volumes. So basically, you can see a 13 percentage growth and close to 10 to 7 percentage growth in the Domestic and other segments, but only the challenges with respect to the Industrial segment, which is there. So practically, my 50% of the volumes are basically fluctuating because of the prices of propane and natural gas. So if the propane -- we are competitive to propane in the long term, then basically, we will be looking at the volume of more than 10 mmscmd. But if it is -- the prices are propane as competitive, then maybe a 9 or 10 mmscmd around that range will be moving, considering that we will be growing in the CNG and the Domestic segments.

So sir, we have already done, I think, about 8.5% for the first half in this year, right? I mean so moving into second half, given the situation remains as it is, so would it be reasonable to say that we'll be sub 9 in FY '26 and maybe like just anywhere between 9 and 10 for FY '27, would that be a right assessment?