Indian gas utilities face Q1 margin crunch on supply shock
A supply disruption from Qatar and elevated spot prices are set to drag down first-quarter earnings for India's natural gas sector, though structural demand growth keeps the long-term thesis intact.
India’s natural gas companies are bracing for a sharp decline in June quarter earnings as a shutdown at a major Qatari export facility forces expensive spot-market purchases and crimps domestic supply.
Total domestic consumption fell more than 10% year-on-year to roughly 170 million standard cubic metres per day (mmscmd) in the first two months of the quarter, according to the Petroleum Planning & Analysis Cell. The drop stems from reduced imports and weaker domestic production, which equally split India's gas supply. Prior to the disruption, India sourced about 40 mmscmd from the offline Qatar plant.
City gas distributors are absorbing the brunt of the cost pressure. JM Financial estimates Mahanagar Gas Ltd (MGL) will report a 48% plunge in Ebitda as elevated procurement costs and rupee depreciation overwhelm volume gains. Rival Indraprastha Gas Ltd (IGL) is expected to fare better, with Ebitda down 28%, supported by recent CNG price hikes and lower operating expenses.
The pain extends up the supply chain. Nomura expects GAIL's Ebitda to fall 25% year-on-year, a decline partially offset by government-mandated LPG production and a 33% jump in LPG realizations. Petronet LNG (PLNG) is forecast to see a 10% Ebitda drop as processing volumes slide at its Dahej and Kochi terminals.
The newly merged Gujarat Energy Ltd stands as a rare bright spot. Formed on May 1 through the consolidation of GSPC, Gujarat State Petronet, GSPC Energy and Gujarat Gas, the entity is projected to post a 3% sequential increase in Ebitda. Industrial sales nearly doubled, driving a 44% surge in overall gas volumes.
Despite the near-term earnings hit, the long-term investment case for city gas distribution remains intact. Household migration to piped natural gas, alongside industrial fuel switching, continues to drive structural volume growth. Shares of PLNG, IGL and MGL have fallen 8% to 14% since late February, while GAIL is up 2.3%. Investors are now focused squarely on when spot purchasing eases and normal supplies resume.
