Why Is Gujarat Gas Confident About Margins and Volume Growth Over the Next Two Years?
About Gujarat Gas
Gujarat Gas is one of India’s largest city gas distribution (CGD) companies, with a dominant presence across industrial, commercial, domestic PNG, and CNG segments in Gujarat. Its performance is closely linked to gas sourcing costs, industrial demand cycles, CNG penetration, and infrastructure expansion.
In its latest concall guidance, Gujarat Gas provided clarity on capital allocation, margin expectations, volume growth drivers, and sourcing strategy. The management commentary suggests a period of operational consolidation with disciplined capex, improving demand visibility, and a gradual reduction in gas price volatility risk.
Capital Expenditure Outlook
For the full financial year, Gujarat Gas has guided for capital expenditure in the range of ₹650–700 crore. Importantly, management indicated that a similar annual run rate is likely to be maintained over the next couple of years, signalling steady network expansion rather than aggressive capacity build-up.
This capex will largely be deployed toward expanding CNG stations, last-mile connectivity for PNG customers, and strengthening pipeline infrastructure in high-demand industrial clusters. The approach reflects a balance between growth and return discipline, especially in an environment where gas sourcing costs can fluctuate sharply.
Margin Guidance: EBITDA per SCM
| Metric | Management Guidance |
|---|---|
| FY EBITDA margin | ₹5.5 – ₹6.5 per SCM |
Management expects full-year EBITDA margins to remain within the guided range, indicating confidence in pricing discipline and cost pass-through mechanisms despite global gas market volatility.
Stable margins are critical for CGD companies, as even small movements in per-SCM profitability can have a meaningful impact on overall earnings given the high-volume nature of the business.
Market participants often contextualise CGD performance with broader indices using Nifty Tip.
CNG Growth Strategy
CNG volumes are expected to deliver double-digit growth, with management targeting at least 13% growth. Gujarat Gas also aims to cross 1,000 CNG stations over the next two to three years, reinforcing its focus on the fast-growing mobility segment.
The continued push toward cleaner fuels, rising vehicle conversions, and expanding urban transport networks support a structurally positive outlook for CNG demand, particularly in Gujarat’s urban and semi-urban regions.
Industrial Volumes: Morbi Cluster
| Parameter | Run Rate |
|---|---|
| Current Morbi volumes | ~2.2 MMSCMD |
| Expected Feb–Mar run rate | ~3.0 – 3.2 MMSCMD |
The Morbi ceramic cluster is a key industrial demand driver for Gujarat Gas. A recovery toward the 3–3.2 MMSCMD range suggests improving utilisation, better export demand, and a gradual normalisation in industrial gas offtake.
Gas Sourcing Strategy
The company aims to increase long-term gas sourcing to 60–70% of total volumes, with this target expected to be achieved by the end of FY27. This shift is designed to reduce exposure to spot LNG price volatility and improve earnings stability.
A higher share of long-term contracts can provide better visibility on input costs, aiding margin planning and reducing earnings swings during periods of global gas market stress.
|
Positives
Steady capex with return discipline Double-digit CNG volume growth visibility Improving industrial demand in Morbi |
Monitorables
Global gas price volatility Industrial demand cyclicality Execution pace of long-term sourcing shift |
Investor Takeaway
Derivative Pro & Nifty Expert Gulshan Khera, CFP®, believes Gujarat Gas’s guidance reflects a phase of calibrated growth rather than aggressive expansion. Stable margins, rising CNG penetration, and improved industrial volumes provide earnings support, while the shift toward higher long-term gas sourcing could meaningfully reduce volatility over time. Investors should track execution on sourcing strategy and industrial recovery closely. More structured insights are available at Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
Related Queries on Gujarat Gas
What drives Gujarat Gas EBITDA margins?
How important is CNG growth for CGD companies?
Why is Morbi industrial demand critical?
How does long-term gas sourcing reduce risk?
What are the key risks for city gas distributors?
SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
