Sound growth strategy in place; RLNG will remain: Guj Gas

Sugata Sircar, MD, Gujarat Gas explains to CNBC-TV18 that the implementation of a sound strategy has restored the company's financials over a nine-month period. He adds that the share of RLNG in the gas-sourcing mix will remain and he is working on several solutions to reduce the impact of the increased and fluctuations in cost.

Below is an edited transcript of the interview on CNBC-TV18.

Q: What is the plan regarding the open offer from Gujarat State Petroleum Corporation Ltd (GSPC)? Is delisting an option that the promoters of Gujarat Gas are examining?

A: I cannot comment on that because that is not known. However, an agreement has been signed at this stage. There are number of processes which are currently in progress and only when these processes are completed, the transaction will actually take place and your question would be valid.

Q: If the open offer is successful, GSPC will end up with more than 90-percent stake in Gujarat Gas, at which point delisting will emerge as a real option. Have you not given it any thought?

A: It is not for us to give it a thought; I think you should ask the acquirers that. But as far as management of this business is concerned, our focus is on the various strategies. Our strategy for the short-term and the long-term is evident in our results that we deliver to our shareholders.

Q: In your interaction with GSPC, do you sense any change in strategy at all for Gujarat Gas going forward in terms on equations on pricing? Is there a perceptible change in strategy?

A: We are not to interact with the acquirer till the transaction is completed. Our strategy of optimising volumes, targeting certain segments and increasing our geographic reach is a sound strategy for growth as it has yielding results. In nine-month period from January to September, we are back to the same kind of gross margin per unit basis levels as in 2011. In this business, change is quarterly because there are variables which affect the quarterly results.

After a relatively poor April-June quarter where our net profit dropped to Rs 52.5 crore, we corrected our prices from July 1 and posted a recovery in the July-September quarter. So in nine months, the company is back on track. We plan to lay more than 50 km of steel pipeline-network this year compared to about 15 km last year. We are putting 7-8 CNG stations. We are revamping our IT infrastructure; we have connected more than 28,000 domestic customers already.

Q: There are concerns regarding the increasing share of LNG in your overall gas-sourcing mix leading to volatility in your margins?

A: In reality, regasified liquified natural gas (RLNG) will continue to increasingly constitute a significant portion of our portfolio. It has gone up to 47 percent in Q3 - the July-September quarter.

We have increased the portion of RLNG as part of our strategy to deal with the shortage of domestic gas that calls for optimising volumes because with RLNG in the mix, the average gas cost obviously becomes higher. So that is why we have to sell those volumes smartly.

Going forward while there will be short-term variables which might affect cost and the margins, we are also trying to tie into longer-term RLNG contracts for about a year or at least for nine months and those will give some stability. Although the prices are not fixed but benchmarked, but if you have an outlook on oil prices and if you expect rupee-dollar to move in a certain way, you can do some predictions.

Short-term prices fluctuate even more sharply. So we are trying to tie-up at least 80-90 percent of RLNG requirement through a long-term deal for next year. So that is one solution.

The other solution is to keep optimising volumes and correcting prices whenever necessary. But we would not like to correct prices too often as it would affect our customers. We have not changed customer-prices from October 1 although we had to do it almost every quarter for the last six quarters or so. So we do have a strategy around that because RLNG is going to be there.