Closure of coal gasifiers in Morbi a positive for Gujarat Gas

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Ruchi Agrawal
Moneycontrol Research

The National Green Tribunal (NGT) has recently ordered all ceramic units that operate on coal gasifiers in Morbi, Gujarat to switch to gas or shutdown their operations. This move stands to benefit the industrial volumes of Gujarat Gas, which is the sole supplier of natural gas in the region. Given this positive impact, the company’s stock has seen an steep uptick in trade.

- Morbi accounts for almost 70 percent of the ceramic industry in India and almost five percent worldwide

- The region consumes around 2.5 million standard cubic feet per day (MMSCMD) of gas at present. Nearly 50 percent of ceramic companies were relying on coal gasifiers. Switch to gas is expected to take gas consumption to four MMSCMD

-Switch from coal to gas is a positive for Gujarat Gas. The company has been facing volume pressure since long, especially in the industrial segment, which accounts for almost 70 percent of the company’s total volume

- Volumes are currently in the range of 6.8 MMSCMD. This means the uptick from this move would mean 22 percent of current volumes. Even if half of this comes through, it would mean almost 13-15 percent uptick in the company’s FY20 estimated earnings per share (EPS).

- This recent order, however, stands to increase the cost of the ceramic companies, which are currently using coal gasifiers and is cheaper than gas. One cubic metre of gas costs Rs 36, compared to Rs 20 in the case of coal. Ceramic companies said they would challenge the decision in the higher court, so the actual implementation of the order would be something to watch out for.Follow @Ruchiagrawal