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Last Updated : May 06, 2013 12:12 PM IST | Source: CNBC-TV18

Aim to grow business in competitive segments: Gujarat Gas

Gujarat Gas aims to focus on segments and applications where gas is still very competitive not only economically, but because of its other attributes, says MD Sugata Sircar.


Gujarat Gas aims to focus on segments and applications where gas is still very competitive not only economically, but because of its other attributes, says MD Sugata Sircar.


The company has invested heavily in network infrastructure and CNG infrastructure. "We have spent about Rs 200 crore over the last one year for growing the network. The objective is to reach newer markets for volumes in viable segments,” he told CNBC-TV18 in an interview.


Also Read: Petronet keen to buy 25% stake in Gujarat LNG terminal


The company’s consolidated profits were down by 15 percent to Rs 59 crore  in fourth quarter of FY13, impacted by sharp increase in LNG prices and decline in domestic gas supply.


Below is the verbatim transcript of Sugata Sircar’s interview on CNBC-TV18


Q: Could you talk little bit about your gross margins that has slipped around Rs 4.50 per unit this quarter because of pressures in terms of cost? What kind of an average run rate can you maintain in terms of gross margins for the rest of the calendar year?


A: We have been maintaining quite a healthy run rate. In the first quarter, we had a short fall in supply by over 30 percent in the months of January and February and started recovering from March. For the first full quarter, we had a short fall in supply which had to be replaced by re-gasified LNG which is much more expensive and that had hit the average cost for the first quarter.


We increased prices from February 01, but did that to the extent that would be feasible in the market. So, this is a kind of a quarterly variability that we saw in the first quarter. The gas supply has been recovering since March.


If you look at the last four quarters, we have been maintaining Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA) of about 14 percent or so. Our gross margins have also increased over the years. A year back to now, the gas cost on an average has increased by about 26 percent but our gross margin has marginally improved. So, we are sustaining gross margins and expect that to sustain the margins on an annualised basis.


Q: Volumes are a bit sluggish quarter on quarter for the company this time around. For the rest of the calendar year, what would you point to in terms of volume growth that we can expect to see?


A: Volumes, this company started doing the gas business when gas could be sold against any alternate fuel. It was much cheaper against any alternate fuel. Today, at the level that the gas costs are, gas is very competitive in certain segments and in certain applications.


So we are growing volumes in CNG, in domestic and certain applications of the industrial segment. There are certain applications where customers may find cheaper options and so we are seeing this churn and expect this churn to continue for some time.


Our focus is to grow business in certain segments and applications where gas is still very competitive not only economically, but because of its other attributes as well and have been doing that. We have also been investing quite heavily in the network infrastructure, in the CNG infrastructure.


We have spent about Rs 200 crore over the last one year for growing the network. The objective is to reach newer markets for volumes in viable segments. So, we expect to see this churn for some time where we will be growing volumes in certain segments and applications and maybe losing in certain segments and applications. This optimisation is expected for some time.


Q: The greater focus at this point is what exactly Gujarat State Petroleum Corporations (GSPC) re-organisation plan is with regards to Gujarat Gas? For instance, is it an option to look at some kind of merger between GSPC Gas and Gujarat Gas? By what time will that may fructify and what kind of impact would it have on combined volumes for you?


A: The change in the promoter has not taken place yet because the change in majority shareholding has not yet taken place. After that happens, we expect the reconstituted board to look at the strategy, review. Then, there are a number of options if you are thinking about structuring but those things are not clear at this stage because only once the transaction happens and in a board review strategy can we discuss something about what’s the view forward. But we have a pretty sound strategy as far as this company is concerned because, while we optimise volumes, we are sustaining our profitability and investing in growth and that’s a pretty much good strategy.


We have bid for a new area which is pending with the regulatory board. We are expecting that process to recommence soon and that is the third round of bidding. If there are other areas that the regulatory board puts up for bidding, we might assess them. The strategy is pretty sound. We expect the board to look at it by the mid year again and we will take it from there.


Q: You had hiked prices in the month of February. Are there any more price hikes that are on the anvil either for the industrial segment or for your CNG customers in order to offset the increase in LNG prices?

A: We have revised prices once again from April 1 and we are in May. So, we keep looking at this almost on a quarterly basis now because of the variability in the gas cost. This is because we have to optimise volumes and prices very carefully. We do it only to the extent that we believe our market segment can take it and the process will continue. We have done a price revision in the industrial segment where we sell 75 percent of our volumes from April 1. We would look at it every quarter if it is required and will touch it only of it is required. Our focus will be to sustain those gross margins and grow volumes through new areas.



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First Published on May 6, 2013 11:31 am
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