Propane is now cheaper and that’s bad news for Gujarat Gas

Propane will now cost $8.8 per million British thermal units (MMBtu), whereas Gujarat gas is priced at $9.8 per MMBtu in the Morbi region, as per analysts’ calculations.

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Saudi Aramco has reduced its June LPG contract price (CP) for propane by $105 per metric ton from the May CP, setting it at $450 per metric ton. This price reduction is likely to have a negative impact on Gujarat Gas, according to analysts. With the new price, it is expected that propane would become cheaper compared to Gujarat gas prices from July.

Propane will now cost $8.8 per million British thermal units (MMBtu), whereas Gujarat gas is priced at $9.8 per MMBtu in the Morbi region, as per analysts’ calculations.

This price difference might lead customers to choose propane over Gujarat gas due to the lower cost. In an interview with CNBC-TV18 last month, Morbi Ceramic Association’s Shailesh Vasnani had already warned that Gujarat Gas needed to respond with a generous cut in prices in order to discourages customers’ from switching.

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At 11 am, Gujarat Gas shares were trading at Rs 491.50 on the NSE, about 3 percent lower from previous close with heavy volumes of 1.3 million shares.

This development comes two months after government approved a cap on domestic gas prices based on Kirit Parekh Committee recommendations. The cap will ensure lower input costs for city gas distributors, thus leading to margin recovery.

The financials

In Q4, Gujarat Gas reported a fall in net profit by 16 percent year on year to Rs 369 crore, compared to Rs 444 crore in the corresponding period last year.

Revenue from operations for the January-March quarter came in at Rs 4,073.82 crore, declining of 14 percent YoY. However, sales volume increased 22 percent to 8.86 mmscmd.

The 12-month consensus target on the stock is Rs 557.50. This represents an upside of 13 percent from the current level.

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