Gujarat Gas Ltd:Annual Report 2023-24 Analysis

Gujarat Gas Ltd: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

Gujarat Gas Limited (GGL) was established in 1980 as Gujarat Gas Company Limited. It was originally incorporated as a joint venture between Gujarat State Petroleum Corporation (GSPC) and Mafatlal Group.

Headquarters Location and Global Presence #

The company’s headquarters are located in Ahmedabad, Gujarat, India. GGL primarily operates within India, focusing on Gujarat and other regions. It doesn’t have a global presence in the traditional sense.

Company Vision and Mission #

• Vision: To be a leading integrated gas company, providing reliable, safe, and environment-friendly energy solutions.
• Mission:
  • Enhance customer value through innovative products and services.
  • Expand infrastructure to reach more customers.
  • Maintain the highest standards of safety and operational excellence.
  • Promote sustainable growth and contribute to the well-being of the community.

Key Milestones in Their Growth Journey #

• Early Years: Focused on developing gas distribution infrastructure in Gujarat.
• Expansion: Expanded its network to cover multiple districts and cities.
• Mergers & Acquisitions: Gujarat Gas acquired GSPC Gas in 2015, significantly expanding its operational area and customer base.
• Infrastructure Development: Continuous investment in pipelines, CNG stations, and other infrastructure.

Stock Exchange Listing Details and Market Capitalization #

GGL is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). As of October 26, 2023, its market capitalization is approximately ₹41,768.05 crore.

Recent Financial Performance Highlights (FY23) #

• Revenue from Operations: ₹16,432.53 Crore
• Net Profit: ₹972.06 Crore

Management Team and Leadership Structure #

• Executive Director (MD): Sandeep Dave

Notable Awards or Recognitions #

• Recent Awards: Details regarding recent specific awards were unavailable

Their Products #

Complete Product Portfolio with Categories #

GGL’s primary products revolve around natural gas distribution:

• Piped Natural Gas (PNG): For residential, commercial, and industrial customers.
• Compressed Natural Gas (CNG): For vehicles.

Flagship or Signature Product Lines #

The distribution of PNG to industrial clients represents a flagship area, given the higher volumes involved.

Key Technological Innovations or Patents #

• GGL has implemented advanced technologies for pipeline monitoring, leak detection, and remote control of gas distribution networks.
• They continuously invest in smart metering solutions for improved accuracy and efficiency.

Manufacturing Facilities and Production Capacity #

GGL does not “manufacture” gas. It purchases natural gas from suppliers (domestic and international) and distributes it through its pipeline network. The focus is on infrastructure development rather than production.

Quality Certifications and Standards #

GGL adheres to stringent safety and quality standards, including:

• ISO 9001 (Quality Management)
• ISO 14001 (Environmental Management)
• ISO 45001 (Occupational Health and Safety Management)

Unique Selling Propositions or Technological Advantages #

• Extensive Pipeline Network: One of the largest gas distribution networks in India.
• Reliable Supply: Strong supply agreements with major gas producers.
• Focus on Safety: Stringent safety standards and monitoring systems.

Primary Customers #

Target Industries and Sectors #

• Industrial: Ceramics, textiles, chemicals, pharmaceuticals, engineering, and foundries.
• Commercial: Hotels, restaurants, hospitals, and shopping malls.
• Residential: Households for cooking and heating.
• Transportation: Vehicle owners using CNG.

Geographic Markets (Domestic vs. International) #

GGL operates exclusively within India.

Major Client Segments (Agricultural, Industrial, Residential, etc.) #

The key segments are industrial, residential, and transport.

Distribution Network and Sales Channels #

• Pipeline Network: Extensive pipeline infrastructure for PNG.
• CNG Stations: A network of CNG dispensing stations for vehicles.
• Authorized Dealers and Franchisees: For customer acquisition and service.

Major Competitors #

Direct Competitors in India and Globally #

• Indraprastha Gas Limited (IGL)
• Mahanagar Gas Limited (MGL)
• Adani Total Gas Limited (ATGL)
• Other regional gas distribution companies.

Comparative Market Share Analysis #

The gas distribution market in India is fragmented, with various players holding regional dominance. GGL has a significant share in Gujarat and surrounding regions.

How They Differentiate from Competitors #

• Geographical Focus: Strong presence and brand recognition in Gujarat.
• Customer Service: Emphasis on reliable supply and customer support.
• Infrastructure: Continual investment in upgrading and expanding its pipeline network.

Industry Challenges and Opportunities #

• Challenges: Fluctuations in gas prices, regulatory changes, and competition from alternative fuels.
• Opportunities: Growing demand for natural gas as a cleaner fuel, expansion into new geographic areas, and development of new applications for natural gas.

Future Outlook #

Expansion Plans or Growth Strategy #

• Expanding geographic reach within Gujarat and other states.
• Increasing penetration in existing markets by connecting more households and businesses.
• Investing in infrastructure to support future growth.
• Exploring opportunities in related businesses, such as gas trading and renewable energy.

Sustainability Initiatives or ESG Commitments #

GGL is committed to:

• Reducing its carbon footprint by promoting the use of natural gas as a cleaner fuel.
• Implementing energy-efficient technologies in its operations.
• Investing in renewable energy sources.
• Supporting community development programs.

Industry Trends Affecting Their Business #

• Increasing adoption of natural gas as a cleaner fuel alternative.
• Government policies promoting the use of natural gas.
• Development of new gas infrastructure projects.
• Technological advancements in gas distribution and utilization.

Long-Term Vision and Strategic Goals #

GGL’s long-term vision is to be a leading integrated gas company in India, providing reliable, safe, and environment-friendly energy solutions. Their strategic goals include:

• Expanding its customer base and market share.
• Improving operational efficiency and profitability.
• Enhancing customer satisfaction.
• Promoting sustainable development.

3-Year Trend Analysis of Key Financial Metrics #

Revenue and Profitability #

• Revenue from Operations (Standalone): Decreased from ₹17,306.16 crores in FY 2022-23 to ₹16,292.97 crores in FY 2023-24.
• Net Profit After Tax (Standalone): Decreased from ₹1,525.47 crores in FY 2022-23 to ₹1,142.77 crores in FY 2023-24.
• Earnings per Share (Standalone, Basic & Diluted): Decreased from ₹22.16 in FY 2022-23 to ₹16.60 in FY 2023-24.
• Return on Net Worth: Decreased from 23.83% in FY 2022-23 to 15.36% in FY 2023-24, attributed to a decrease in profit.

Financial Ratios #

• Debtors Turnover: 14.40 for FY 2023-2024 and 16.47 for FY 2022-2023.
• Inventory Turnover: 681.82 for FY 2023-2024 and 781.48 for FY 2022-2023.
• Current Ratio: 1.66 for FY 2023-2024 and 1.40 for FY 2022-2023.
• Operating Profit Margin (%): 12.03% for FY 2023-2024 and 14.30% for FY 2022-2023.
• Net Profit Margin (%): 7.01% for FY 2023-2024 and 8.81% for FY 2022-2023.

Debt Status #

• The Company has no outstanding loan as on 31 March 2024.

Business Segment Performance #

• GGL operates in a single business segment: Natural Gas.

Sales Volume #

• CNG sales volume increased by 12% in FY 2023-24, reaching an average of 2.72 mmscmd.
• Commercial sales volumes increased by 4%.

Infrastructure Expansion #

• Company added 33 new CNG stations.

Major Strategic Initiatives and Their Progress #

CNG Infrastructure #

• Plans to add more than 200 CNG stations in the next 2-3 years under the FDODO scheme.

PNG Network Expansion #

• Added 47,000+ Customers during a nationwide campaign.

Partnerships #

• Partnership with M/s NTPC for Green H2 blending (increased from 5% to 8%) and bio-gas injection into the CNG system.
• Entered into non-binding MoU with HPCL, BPCL, and IOCL for setting up CNG facilities at their filling stations.

Digitization #

• Adoption of digitization of critical processes, aiming for a complete E-Office.

Risk Landscape Changes #

• Competition from other fuels due to accessibility and availability.
• Disparity in tax structure compared to alternate fuels (PNG and CNG are outside GST ambit).
• Regulatory changes, such as the PNGRB’s public notice stating expiry of infrastructure exclusivity for certain GAs, are creating uncertainty.

ESG Initiatives and Metrics #

Green Initiatives #

• Commissioned India’s first Green H2 blending (5% increased to 8%) in the PNG distribution network.
• Started Bio-gas injection into the CNG system.
• Conducted sapling/tree plantation over 2100 during environment week.

Safety Programs #

• Conducted Natural Gas safety awareness programs for the public and customers (579 programs).
• Safety & Technical Competency Training programs :1948 Numbers.
• Conducted Safety Awareness Programs (985 programs).
• Implemented usage of the ‘Call before you Dig’ application.
• Celebrated National Safety Week, Road Safety Week, and World Environment Day with various initiatives.

Reporting and Compliance #

• Constituted a Business Responsibility & Sustainability Reporting (BRSR) Committee.
• Won the ‘SKOCH AWARD 2024’ in the ESG Category for its City Gas Distribution project.
• LTIF achieved 0.209.
• AI score card of 90% compliance.
• Lifesaver rules compliance: 94%

Management Outlook #

• The company expects natural gas demand to increase by 6% in 2024.
• The company will continue to focus on growing penetration in current operating areas.
• The company anticipates a doubling of energy demand by 2045.
• Government is promoting and supporting the use of Natural Gas.
• Leveraging digitization for setting benchmarks in the industry.

Detailed Analysis #

Balance Sheet Analysis #

3-Year Comparative Analysis of Assets, Liabilities, and Equity (Consolidated) #

(in Crores)

Significant Changes in Major Line Items (>10% YoY) (Consolidated) #

• Non-Current Investments: Increased from 30.38 Crores to 135.04 Crores(344.5% increase).
• Other Equity: Increased from 6,890.27 Crores to 7,584.80 Crores (10.07% increase).

Working Capital Trends (Consolidated) #

• Current Assets: Increased from 1,979.19 Crores to 2,228.81 Crores (12.61% Increase).
• Current Liabilities: Increased from 2,803.37 Crores to 2,814.94 Crores (0.41% increase).

Asset Quality Metrics (Consolidated) #

• Allowance for Bad and Doubtful Debts (as % of Gross Trade Receivables): 2.02% as of March 31, 2024, compared to 1.89% as of March 31, 2023.
• Impairment of inventory: The company does not see the need to impair the inventory.

Debt Structure and Maturity Profile (Consolidated) #

• Borrowings (Non-Current & Current): The company reported zero borrowings for both 2024 and 2023.
• Lease Liabilities:
  • Non-Current: 117.77 Crores (2024), 123.93 Crores (2023)
  • Current: 32.49 Crores (2024), 28.39 Crores (2023)
• Maturity is disclosed.

Off-Balance Sheet Items (Consolidated) #

• Contingent Liabilities: 565.87 Crores as of March 31, 2024, compared to 555.70 Crores as of March 31, 2023. Includes disputed statutory dues and claims/litigations not acknowledged as debt.
• Commitments: Estimated amount of contracts remaining to be executed on capital account and not provided for stands 925.41cr.

Gujarat Gas Limited: Financial Analysis (FY 2023-24) #

Revenue Breakdown #

• Segment: Natural Gas Business (Single Segment)
• Geography (Outside India): None
• FY 2023-24 Revenue: ₹16,292.97 Crores
• FY 2022-23 Revenue: ₹17,306.16 Crores
• Year-over-Year Growth: -5.85%

Cost Structure Analysis #

• Cost of Materials Consumed/Purchase of Stock-in-Trade:
  • FY 2023-24: ₹12,555.40 Crores (77.06% of revenue)
  • FY 2022-23: ₹13,276.19 Crores (76.71% of revenue)
• Employee Benefit Expenses:
  • FY 2023-24: ₹198.88 Crores
  • FY 2022-23: ₹195.58 Crores
• Other Expenses:
  • FY 2023-24: ₹1,059.28 Crores
  • FY 2022-23: ₹898.40 Crores

Margin Analysis #

• Gross Margin: Not directly calculable from provided data.
• Operating Profit Margin:
  • FY 2023-24: 12.03%
  • FY 2022-23: 14.30%
  • Trend: Decreased
• Net Profit Margin:
  • FY 2023-24: 7.01%
  • FY 2022-23: 8.81%
  • Trend: Decreased

Non-Recurring Items #

• FY 2023-24: Exceptional income of ₹(55.69) Crores (Write-back of provisions for trade margins)

GAAP Reconciliation #

• Financial statements prepared under Ind AS. No non-GAAP measures presented; therefore, no reconciliation is needed.

Earnings Per Share (EPS) Analysis #

• Basic EPS:
  • FY 2023-24: ₹16.60
  • FY 2022-23: ₹22.16
• Diluted EPS:
  • FY 2023-24: ₹16.60
  • FY 2022-23: ₹22.20
• Note: Basic and Diluted EPS are the same.

Cash Management: FY 2023-24 Financial Analysis #

Detailed OCF, ICF, FCF Components (Standalone and Consolidated, FY 2023-24, in Crores) #

OCF (Standalone) #

• Profit Before Tax: 1,536.21
• Adjustments (net, non-cash): +436.69 (Includes Depreciation, Finance Costs, and other non-cash items)
• Changes in Working Capital (net): -20.10
• Income Taxes Paid: -322.71
• Net OCF: 1,629.83

OCF (Consolidated) #

• Profit Before Tax: 1,534.57
• Share of profit from Associate: +2.57
• Adjustments (net, non-cash): +437.69
• Changes in Working Capital (net): -20.10
• Income Taxes Paid: -322.71
• Net OCF: 1,631.48

ICF (Standalone) #

• Payments for PPE/Intangible Assets: -837.14
• Purchase of investments: -100.00
• Proceeds from sale of investment: +0.06
• Other Bank Balance (net): -3.86
• Interest Received: +60.56
• Proceeds from sale of property, plant, equipment: +0.09
• Dividend Received: +1.64
• Net ICF: -878.65

ICF (Consolidated) #

• Payments for PPE/Intangible Assets: -837.14
• Purchase of investments: -100.00
• Proceeds from sale of Investment: +0.06
• Dividend received: +1.64
• Other Bank balances in Earmark funds (net): -3.86
• Interest Received: +60.56
• Proceeds from sale of PPE: +0.09
• Net ICF: -878.65

FCF (Standalone) #

• Not directly calculable from the provided data, as it requires deducting only capital expenditures (which are part of ICF but also include changes in capital work in progress and capital advances, and separating growth capex from maintenance capex).

FCF (Consolidated) #

• Same limitation as Standalone, as capex is not isolated.

Working Capital Management Efficiency #

• Debtors Turnover (Standalone): 14.40 (FY 2023-24), 16.47 (FY 2022-23). Decrease indicates slower collection of receivables.
• Inventory Turnover (Standalone): 681.82 (FY 2023-24), 781.48 (FY 2022-23). Decrease indicates slightly less efficient inventory management.
• Trade Payables Turnover Ratio (Standalone): 26.33 (FY 2023-24), 32.88 (FY 2022-23).

Dividend and Share Buyback Trends #

• Dividend Declared (Standalone & Consolidated): 457.78 Crores (FY 2023-24), 137.68 Crores (FY 2022-23).
• Share Buyback: No share buyback activity is reported in the provided data.

Liquidity Position and Cash Conversion Cycle #

• Current Ratio (Standalone): 1.66 (FY 2023-24), 1.40 (FY 2022-23). The increase suggests improved short-term liquidity.
• Cash and Cash Equivalents (Standalone): Increased to 915.98 Crores (FY 2023-24) from 674.70 Crores (FY 2022-23).
• Cash Conversion Cycle: Not directly calculable from the provided data. Need days inventory outstanding, days sales outstanding, and days payables outstanding to compute.

Operational Metrics of Gujarat Gas Limited: A Financial Analysis #

Key Performance Indicators #

This analysis examines the financial performance of Gujarat Gas Limited (GGL) based on its Annual Report, focusing on key operational metrics.

Profitability Ratios (3-Year Trend) #

*ROA is calculated as Net Income / Average Total Assets. ROIC value is calculated as Profit before Tax and Interest/Average Capital Employed.

Key observations:

• ROE has decreased significantly year over year, mainly attributable to reduced net income.
• ROIC also shows a reduction reflecting that increase in Capital Employed along with a decrease in overall profitability.
• Net Profit Margin decreased with reduced profitability.

Liquidity Metrics #

• Quick Ratio is (Current Assets - Inventories) / Current Liabilities (excluding Customer Deposits).
• Cash ratio is (Cash and Cash Equivalents + Other Bank Balances) / Current Liabilities (excluding customer deposits)

Key observations:

• The Current Ratio has improved, indicating a better ability to meet short-term obligations.
• Quick Ratio and Cash Ratio indicates sufficient liquid asset to meets its liabilities.

Efficiency Ratios #

• Asset Turnover Ratio is calculated as Revenue from operations / Average total assets.

Key observations:

• Both Inventory Turnover and Receivables Turnover have decreased, suggesting a slight reduction in operational efficiency.

Leverage Metrics #

*There are no outstanding long term loans

Key observations:

• The company is debt-free, eliminating leverage risk.
• Interest Coverage Ratio is not applicable due to the absence of debt.

Working Capital Ratios #

*Net Capital Turnover is calculated as Revenue from operations / working capital.

Key observations:

• Net Capital Turnover Ratio is reduced as compared to last year.
• All figures in this analysis are based solely on the Standalone Financials from the provided document and, therefore, may not be directly comparable to consolidated figures or industry averages if those are calculated differently.
• The company is having negative working capital due to customer deposits, which is routine business activity.

Comparison with Industry Averages and Significant Deviations #

A definitive comparison with industry averages cannot be made with the available data. Ideally, one would need data from PNGRB or other industry sources, and compare companies with CGD business. However, initial observations based on this data would suggest:

• Profitability: While the downward trend in ROE is a concern, the absolute figures will be evaluated comparatively when market data is made available.
• Liquidity: The company’s liquidity position, as indicated by the current and quick ratios, is strong. This is generally positive, allowing the company operational flexibility.
• Efficiency: Decreases in turnover ratios should be monitored. It may indicate a need to improve inventory management or collection processes.
• Leverage: The lack of debt significantly reduces financial risk. The company is in a strong position to potentially take on debt for expansion if it chooses.

Gujarat Gas Limited (GGL) Financial Analysis #

Revenue and Profitability Metrics #

• Total Income (FY 2023-24): ₹16,400.72 Crores (Standalone), ₹16,399.08 Crores (Consolidated).
• Total Income Growth Rate (YoY): -5.78% (Standalone), -5.8% (Consolidated).
• Profit Before Tax (FY 2023-24): ₹1,536.21 Crores (Standalone), ₹1,537.14 Crores (Consolidated).
• Profit Before Tax Growth Rate (YoY): -24.12% (Standalone), -24.19% (Consolidated).
• Net Profit After Tax (FY 2023-24): ₹1,142.77 Crores (Standalone), ₹1,143.70 Crores (Consolidated).
• Net Profit After Tax Growth Rate (YoY): -25.01% (Standalone), -25.12% (Consolidated).
• Operating Profit Margin (FY 2023-24): 12.03% (Standalone). A decrease from 14.30% in FY 2022-23.
• Net Profit Margin (FY 2023-24): 7.01% (Standalone). A decrease from 8.81% in FY 2022-23.

Market Share and Competitive Position #

• GGL is among the largest City Gas Distribution (CGD) Companies in India.
• Market Share (Domestic Connections): 17%
• Market Share (CNG Stations): 13%
• Market Share (Commercial Connections): 37%
• Market Share (Industrial Connections): 24%

Key Products/Services Performance #

• Natural Gas Sales: The primary revenue driver.
• CNG Sales: Achieved the highest average annual CNG sales of 2.72 mmscmd in FY 2023-24, a 12% increase over FY 2022-23.
• PNG Connections: Connected over 187,000 residential customers, surpassing 2.1 million domestic connections.
• Industrial Customers: New signings of industrial customers are 1.11mmscmd.

Geographic Distribution and Market Penetration #

• Operational Area: 44 districts across six states and one Union territory.
• Licensed Area: Approximately 175,700 square kilometers.
• New Geographic Areas: GGL has entered new areas and is supplying gas using virtual pipelines and line pack.

Segment-wise ROIC #

• Return on Net Worth: 15.36% (Standalone) in FY 2023-24, a decrease from 23.83% in FY 2022-23.
• Return on Capital Employed: 20% (Standalone) in FY 2023-24, a decrease from 29% in FY 2022-23.

Operational Efficiency Metrics #

• Inventory turnover: 681.82 (Standalone) in FY 2023-24, a decrease from 781.48 in FY 2022-23.
• Debtors Turnover: 14.40 (Standalone) in FY 2023-24, a decrease from 16.47 in FY 2022-23.
• Lost Time Injury Frequency: 0.209 for FY 2023-24, with 33.54 million man-hours.
• Asset Integrity Index: Approximately 90% compliance with the AI scorecard in FY 2023-24.
• Lifesaver rules: GGL achieved ~94% compliance.
• HSE Improvement plan: GGL has achieved 95% compliance.

Growth Initiatives and Challenges #

Growth Initiatives #

• Plans to add over 200 CNG stations in the next 2-3 years under the FDODO scheme.
• Entered into non-binding MoUs with HPCL, BPCL, and IOCL for setting up CNG facilities at their filling stations.
• Commissioned India’s first Green H2 blending (5%) in PNG distribution network at Kawas, Hazira.
• Started Bio-gas injection into the CNG system at Sanchor, Rajasthan.
• Implemented usage of ‘Call before you Dig’ application.
• Stepped up HSE score card to align with ESG requirement.

Challenges #

• Competition from other fuels due to accessibility and availability.
• Disparity in the tax structure compared to alternate fuels (PNG and CNG are outside GST ambit).
• Regulatory challenges had been presented to GGL by expiration of infrastructure exclusivity periods.

Risk Assessment: Natural Gas Business #

Strategic Risks #

• Severity: High. The company’s complete reliance on natural gas makes it highly susceptible to market shifts.
• Likelihood: Medium. Government targets to increase natural gas share in the energy mix to 15% by 2030 present both opportunities and competitive threats. PNGRB authorized area will affect market share.
• Trend: Increasing. Competition from other fuels and regulatory changes (expiry of infrastructure exclusivity, challenges by Mahanagar Gas Limited) are intensifying.
• Mitigation Strategies: Expansion into new geographic areas, development of CNG station infrastructure (FDODO scheme), and partnerships with OMCs (HPCL, BPCL, IOCL).
• Control Effectiveness: Partially effective. Connecting new customers (1.87 lakh PNG, 33 new CNG stations) but facing regulatory and competitive pressures.
• Potential Financial Impact: Significant. The company’s revenue and profitability will highly depend on the gas price.

Operational Risks #

• Severity: High. Potential for major accidents, supply disruptions, and asset integrity issues.
• Likelihood: Medium. New geographic areas increase risk due to virtual pipeline network and CNG/LNG decompression, and new projects like Green H2 blending.
• Trend: Stable. Extensive safety procedures (160+ SOPs), QHSE management systems (ISO 9001:2015, ISO 14001:2015, ISO 45001:2018), and risk assessments (HAZOP, QRA, EMERA, HAC) are in place, but new projects introduce risks.
• Mitigation Strategies: QHSE management, risk assessment studies, compliance audits (ERDMP, T4S, IMS), mock drills, employee training programs, and contractor performance evaluations.
• Control Effectiveness: Good for most, with Key Safety Index. LTIF is 0.209 (FY 2023-24), 90% Compliance to the Asset integrity in FY 2023-24, Mock-drills level -1 (106), level-2(38), level -3 (25), ~94% Compliance of GGL lifesaving rules. 95% Compliance of HSE imporvment plan.
• Potential Financial Impact: High, due to potential for compensation, asset damage, and reputational damage.

Financial Risks #

• Severity: Medium.
• Likelihood: Medium. Volatility in crude oil and natural gas prices.
• Trend: Fluctuating. Current Ratio increased (1.66 from 1.40), while Return on Net Worth decreased (15.36% from 23.83%).
• Mitigation Strategies: Digitization of critical processes and investment in IT infrastructure. Pass through mechnaism of cost.
• Control Effectiveness: Moderate. Debtors Turnover is decreasing, and Inventory Turnover ratio decreasing. No outstanding loan and healthy net cash inflow.
• Potential Financial Impact: Net profit after tax (Total comprehensive income) for the current financial year 2023-24 decreased to ’ 1,151.43 Crores from ’ 1,533.99 Crores in the previous year.
• Quantitative risk metrics and year-over-year changes:
  • Debtor turnover ratio:Decreased,14.40(FY 2023-24),16.47(FY 2022-23).
  • Inventory Turnover Ratio: Decreased, 681.82 (FY 2023-24) vs. 781.48 (FY 2022-23)
  • Current Ratio: Increased, 1.66 (FY 2023-24) vs 1.40 (FY 2022-23).
  • Operating Profit Margin (%):Decreased, 12.03%(FY 2023-24),14.30%(FY 2022-23)
  • Net Profit Margin (%):Decreased, 7.01%(FY 2023-24),8.81%(FY 2022-23).
  • Return on Net worth: Decreased, 15.36%(FY 2023-24),23.83%(FY 2022-23)

Compliance/Regulatory Risks #

• Severity: High. Non-compliance with PNGRB regulations, safety standards, and environmental regulations can lead to penalties.
• Likelihood: Low.
• Trend: Stable. Regular audits, compliance checks, and engagement with regulatory bodies (PNGRB).
• Mitigation Strategies: Compliance audits, engagement with PNGRB, adherence to safety standards.
• Control Effectiveness: High, with no major non-compliances reported.
• Potential Financial Impact: Moderate.

Emerging Risks #

• Severity: High. The Green H2 blending is an innovative project that will help in reducing carbon emissions.
• Likelihood: Medium. 5% Green H2 blending and 8% Green H2 blending were tested.
• Trend: Increasing,
• Mitigation Strategies: Comprehensive testing methods.
• Control Effectiveness: Good till date.
• Potential Financial Impact: Will reduce carbon emissions, however, the financial impact is not defined.

Strategic and Management Analysis of Gujarat Gas Limited (GGL) #

Long-Term Strategic Goals and Progress #

• GGL aims to expand its City Gas Distribution (CGD) network, aligning with the Indian government’s goal of increasing natural gas share in the energy mix to 15% by 2030.
• Progress is demonstrated by the connection of over 187,000 residential customers and 33 new CNG stations in FY 2023-24.
• The company is achieving its Minimum Work Program target.
• The company plans to add more than 200 CNG stations in the next 2-3 years.
• The PNGRB has granted permission to increase Green H2 blending in PNG from 5% to 8%.
• GGL has also started its first Bio-gas injection into the CNG system.

Competitive Advantages and Market Positioning #

• GGL is the largest CGD company in India by sales volume.
• GGL has a large licensed area of around 175,700 square kilometers.
• GGL holds 27 CGD licenses, operating across 44 districts in six states and one union territory.
• The company enjoys upgraded credit ratings, with AAA/Stable ratings from India Ratings, Care Ratings, and CRISIL.

Innovation Initiatives and R&D Effectiveness #

• GGL has commissioned a pilot project for blending green hydrogen (H2) with natural gas in its PNG network.
• The company started its first Bio-gas injection into the CNG system.
• GGL is implementing smart pre-paid gas meters.
• The company is adopting digitization of critical processes.
• The company has worked in the implementation of the “Call before you dig” app.

Management’s Track Record in Execution #

• The company has a track record of connecting further households to natural gas and developing the market.
• Company plans to add more than 200 CNG stations in the next 2-3 years under its FDODO scheme.
• The company has achieved compliance with various PNGRB.

Capital Allocation Strategy #

• Investments are directed towards the extension of pipeline networks, connecting residential customers, and augmenting CNG infrastructure.
• The company proposed a dividend of ’ 5.66/- per fully paid up Equity Share.
• No funds were raised through debt securities during the financial year 2023-24.

Organizational Changes and Their Impact #

• Shri S. J. Haider, IAS was appointed as Additional Director.
• Shri J. P. Gupta, IAS and Smt. Mamta Verma, IAS ceased to be Directors.
• Shri Nitesh Bhandari, CFO, resigned, and Dr. V K Joshi was appointed as Executive Director.
• The Board constituted a Business Responsibility and Sustainability Report (BRSR) Committee.

ESG Analysis #

Environmental Metrics and Targets #

• GGL aims to plant approximately 3,000 saplings/trees in FY 2024-25.
• GGL plans to procure green power from solar power generation plants equivalent to the power requirements of all its COCO CNG stations (30 Mn+ KWH of annual power) to reduce Scope-2 emissions in FY 2024-25.
• GGL targets setting up 2 new LNG storage and regasification facilities in FY 2024-25.
• GGL achieved a Lost Time Injury Frequency (LTIF) of 0.209 for FY 2023-24.
• GGL has implemented a pilot project of blending green hydrogen with natural gas, increasing the blend from 5% to 8% in December 2023.
• GGL has started injecting Compressed Bio-gas (CBG) into its CNG system, with over 15,000 Kg delivered by the end of FY 2023-24.
• GGL’s use of CNG Mobile Cascade Vehicles (MCVs) run on CNG, eliminating the use of Diesel is leading to Energy Conservation.
• Outdoor Lighting Systems for COCO CNG Stations with high mast lighting has helped to reduced Installation of Light Poles/ Fixtures.
• GGL is optimising the power requirement and reduced contract demand at few CNG stations
• GGL recognized for its City Gas Distribution (CGD) project with the ‘SKOCH ESG Award 2024’.

Social Responsibility Programs #

• GGL connected more than 1,87,000 residential customers and commissioned 33 new CNG stations in FY 2023-24.
• GGL supported the “One Gujarat One Dialysis Programme”.
• GGL is providing financial and other assistance for specific CSR activities/projects to various Trusts/Implementing Partners.
• GGL has contributed to skill development programs, empowering youth and enhancing livelihoods, training over 150 youths.
• GGL has supported the construction of a new building for Kanya Ashram Shala.
• GGL plans to support construction of a new building for the Indian Institute of Information Technology (IIIT), Surat.
• GGL has set a goal for the development/upgradation of approx. 225 anganwadis.
• Other CSR initiatives include support for Mangalam Canteen, Micro Enterprise Development, providing cost-effective farm mechanization, and developing a Proof of Concept of Optical Camera-based Smart Navigation System.
• Total CSR Obligation for FY 2023-24 was INR 36.58 crores. GGL spent a total of INR 37.10 crores on CSR projects.

Governance Structure and Effectiveness #

• The Board of Directors consists of 8 Directors, with 7 Non-Executive Directors and 4 Independent Directors.
• The Board has established committees, including an Audit Committee, a Nomination and Remuneration Committee, a Stakeholders Relationship Committee, a Business Responsibility & Sustainability Reporting (BRSR) Committee, and a Risk Management Committee.
• The Audit Committee, Nomination and Remuneration Committee, and Stakeholders Relationship Committee held multiple meetings during FY 2023-24, with high attendance rates.
• The Company has a Code of Conduct for Directors and Senior Management, and a Code of Conduct for Regulating, Monitoring and Reporting of Trading by Designated Persons.
• The Company has a Vigil Mechanism and a policy on Materiality of Related Party Transactions.
• The company has a CSR committee and has formulated CSR policy in accordance with Section 135 of the Companies Act, 2013.

Sustainability Investments and ROI #

• GGL invested in the extension of the pipeline network, connection of residential customers, and augmentation of CNG infrastructure.
• Company plans to add more than 200 CNG stations in the next 2-3 years under FDODO scheme.
• GGL has ventured into new geographic areas and invested in safety precautions for these new areas, including hazard and risk assessments.
• The company has upgraded 23 Daughter & Daughter Booster CNG stations to Online stations to reduce dependency on Mobile Cascade Vehicle, potentially reducing transport related cost and emission.

ESG Ratings #

• India Ratings and Care Ratings upgraded GGL’s long-term bank facilities rating to AAA/Stable from AA+/Positive in FY 2023-24.

Regulatory Compliance and Future Preparations #

• The Company complied with applicable Secretarial Standards.
• The Company maintains compliance with all applicable legal requirements, including PNGRB regulations.
• The Company transferred the unspent CSR amount of INR 28.11 Crores for ongoing projects to a special account in compliance with section 135(6) of the Companies Act, 2013.
• The Company has a Business Responsibility and Sustainability Report (BRSR) in compliance with SEBI regulations.
• The company aims for complete automation of its policies and processes to set a benchmark in the CGD Industry.

Forward Outlook: Natural Gas Business #

Management Guidance and Assumptions #

• Useful lives estimates for Property, Plant, and Equipment (PPE) are realistic.
• Risk of fraud is higher than error.
• Positions in tax returns are periodically evaluated.
• Exemption applied for investment in equity shares as fair valued through the OCI.
• GGL assets designed to reduce risks to personnel to ALARP.
• Company is not liable to pay a disputed amount with one gas supplier.
• Position in contesting tax demands is likely to be upheld.
• Capital is monitored using a ratio of ‘adjusted net debt’ to ‘adjusted equity’.
• Recoverable amount of deferred income tax assets is based on estimates of taxable income.
• Expected credit losses are considered based on past data and forward-looking estimates.
• Pricing policy considers all fixed and variable costs.

Market Growth Forecasts #

• Government of India target: Increase natural gas share to 15% by 2030 (from 6.7%).

Planned Strategic Initiatives #

• Expand operations to increase natural gas share.
• Set up two new LNG storage and regasification facilities in FY 2024-25.
• Aim for a complete E-Office.
• Relocate all three corporate offices to Gandhinagar in FY 2024-25.
• Add more than 200 CNG stations in the next 2-3 years under the FDODO scheme.
• Procure Green power from Solar power generation plants equivalent to the power requirements of all COCO CNG stations to reduce Scope-2 emissions in FY 2024-25.
• Automate customer care requirements fully.

Capital Expenditure Plans #

• Further investments to expand pipeline network and CNG infrastructure.
• Construct a new building for Kanya Ashram Shala and Indian Institute of Information Technology (IIIT), Surat.
• Invest in renewables.

Efficiency Improvement Targets #

• Aim to set benchmarks in the CGD industry for a complete E-Office.
• Establish 2 LNG stations in new charge areas using virtual pipeline network.

Potential Challenges and Opportunities #

• Challenges:
  • Stiff competition from other fuels.
  • Disparity in the tax structure.
  • MGL has legally challenged a regulatory notice.
• Opportunities:
  • Government promotion of clean fuels (PNG and CNG).
  • Government plan to boost India’s natural gas consumption to 500 MMSCMD by 2030.
  • Government commitment to invest $67 billion in the natural gas sector.
  • Expected 6% increase in natural gas demand in India in 2024.
  • Mandatory blending of Compressed BioGas into the domestic gas supply.

Scenario Analysis and Sensitivity #

• A 10% increase in unquoted equity shares valuation would increase other comprehensive income by ’ 13.18 crore , while a 10% decrease would decrease other comprehensive income by ’ 13.18 crore.
• A 0.5% increase/decrease in the discount rate would alter defined benefit obligations.
• A 0.5% increase/decrease in salary growth rate would result in a corresponding alteration in benefit obligations.
• A 10% variation in the withdrawal rate has minimal impact.

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

• The Independent Auditor’s Report expresses an unmodified opinion on the Standalone and Consolidated Financial Statements, indicating a true and fair view in conformity with Ind AS and other generally accepted accounting principles in India.
• The report contains an “Other Matter” paragraph which states that the financials of controlled trust and associate have been audited by other auditors, and their opinion has been solely based on their report.
• No qualifications or adverse remarks were reported in the Companies (Auditor’s Report) Order, 2020 (CARO) report for the Holding Company and associate Company.

Key Accounting Policies and Changes #

• The financial statements are prepared on an accrual basis under the historical cost convention, with certain exceptions (e.g., financial instruments at fair value, defined benefit plans).
• Revenue recognition policies are based on Ind AS 115, recognizing revenue when control of goods/services is transferred.
• Property, plant, and equipment are depreciated using the Straight-Line Method (SLM) over useful lives as per Schedule II of the Companies Act, 2013, with specific useful lives assigned to certain assets (e.g., pipelines, city gas stations).
• Impairment of non-financial assets is assessed per Ind AS 36.
• The Group has elected to carry forward the previous GAAP net carrying value of all its property, plant, and equipment, intangible assets, and investment property recognized as at April 1, 2015, as the deemed cost.
• There have been no changes in accounting policies during the financial year.

Internal Control Effectiveness #

• The auditor’s report expresses an unmodified opinion on the adequacy and operating effectiveness of the Company’s internal financial controls over financial reporting.
• The company confirms having an adequate Internal Control system and Internal Financial Control.

Regulatory Compliance Status #

• The Company has complied with applicable Secretarial Standards.
• No funds have been raised by the Company through debt securities in FY 2023-24.
• The company reports no non-compliance with any capital market-related matter for FY 2023-24 and no penalties imposed by SEBI, Stock Exchanges, or any statutory authority in the last three years.
• The Company has complied with Corporate Governance Requirements specified in Regulation 17 to 27 and clauses (b) to (i) of sub-regulation (2) of Regulation 46 of the Listing Regulations.
• Company has reviewed and revised its HSE Policy, Asset Integrity Policy, and Quality Policy with an aim to capture and commit to Environmental Social & Governance aspects.

Legal Proceedings and Their Potential Impact #

• The Company has disclosed the impact of pending litigations on its financial position.
• Disputed statutory dues (Excise Duty, Income Tax, Service Tax, GST) for which appeals are pending are disclosed.
• Claims/Litigations against the company are not acknowledged as debt.
• No tax expense has been accrued for tax demand raised.
• There has been an upgrade in the rating on long-term bank facilities.
  • The company has entered into non-binding MoUs with HPCL, BPCL and IOCL.

Related Party Transactions #

• All related party transactions during the financial year were on an arm’s length basis and in the ordinary course of business.
• A statement detailing related party transactions is placed before the Audit Committee.
• Transactions with Gujarat State Petroleum Corporation Limited (Holding Company) and Gujarat State Petronet Limited, included gas transmission expenses, O&M charges, and dividend payments.
• No funds have been raised by issue of debt securities by large entities.

Subsequent Events #

• The Board of Directors proposed a final dividend of ₹5.66 per equity share, subject to shareholder approval.
• No other adjusting or material non-adjusting events requiring recognition or disclosure were identified up to the date of the Board’s approval of the financial statements.

Analysis of Accounting Quality #

• The unmodified audit opinion and absence of CARO qualifications suggest a high level of accounting quality.
• Consistent application of accounting policies (Ind AS) enhances comparability.
• Use of estimates and judgments is disclosed, especially concerning asset useful lives, unbilled revenue, provisions, and tax matters.
• The use of a “simplified approach” for Expected Credit Loss (ECL) on trade receivables is consistent with Ind AS.
• There are no instance of any transaction not recorded in books of account.

Regulatory Risk Assessment #

• The PNGRB has issued a Public Notice stating the expiry of infrastructure exclusivity period for the Geographical Areas (GAs) of Mumbai & Greater Mumbai authorized to Mahanagar Gas Limited (MGL) and for Vadodara GA authorized to Vadodara Gas Limited (VGL)., which poses a regulatory risk.
• Pending litigations with various authorities and third parties pose a regulatory risk, as the outcomes are uncertain.
• The Company operates under authorization of CGD network from PNGRB, with completion of Minimum Work Program (MWP) targets in select Geographical areas.
• Supreme court and APTEL orders are in favour of the Company.
• The Company has established a Vigil Mechanism to report genuine concerns.
• Overall, the regulatory risk appears moderate, primarily stemming from pending litigations and the evolving regulatory landscape in the CGD sector.