How city gas distribution companies fared in Q1FY20

After the dismal performance in the December quarter, the first quarter of the financial year 2019-20 took some breather and city gas distribution (CGD) companies reported good earnings in the quarter. The three CGD companies—Gujarat Gas,  Mahanagar Gas and Indraprastha Gas—largely met or beat street estimates in the June quarter.

The common theme in the Q1FY20 has been margin expansion for all the three companies. For Gujarat Gas, EBITDA per unit expanded substantially to Rs 5.6, a rise of 33 percent year-over-year and up 30 percent quarter-over-quarter.

It was a similar story for Mahanagar Gas, which saw an increase of 24 percent YoY and 28 percent QoQ at Rs10.1, reporting record-high margins.

However, the expansion in margins was not so high for Indraprastha Gas as reported by other companies.  IGL saw a 5 percent QoQ and YoY increase in EBITDA per unit at Rs 6.2.

Moving on the volumes, Gujarat Gas was a complete outlier here, posted record-high volumes due to an increase in industrial volumes at Morbi. Overall volumes were up 44 percent QoQ and YoY for the company at 9.2 mmscmd.

IGL saw steady growth of 14.5 percent YoY and flat growth in QoQ led by growth across segments. The YoY growth was good despite a strong base, and brokerages expect the company to continue to deliver double-digit growth.

However, MGL lagged when it came to volume growth. It saw a 1 percent decline QoQ and a mere 2 percent increase YoY, indicating that the margin expansion was not driven by volume growth but due to lower costs. Most brokerages were not enthused by MGL’s margin expansion due to the volume decline.

But IGL continues to trade at a premium to the other companies and remained a top pick for a lot of brokerages in the sector. The stock is up 21 percent YTD indicating that Street is pricing in the steady performance.

Gujarat Gas, on the other hand, has been on a run after the positive NGT order, and has risen 38 percent YTD and trades at 19X FY20 EPS.

MGL continues to lag and trades at a sharp discount to IGL and Gujarat Gas and trades at 12.6X FY20 EPS.