1) GUJRAT GAS LIMITED
- Strong Growth in Client Base, Volumes & Sales
- Gujarat Gas Limited (GGL) has successfully developed a robust pipeline network exceeding 40,000 kilometers. This extensive infrastructure currently supplies natural gas to over 2.15 million households, 4,400 industrial customers, and 15,200 commercial customers.
- CNG Volumes: GGL achieved the highest-ever CNG volumes of 2.98 mmscmd in Q1 FY25, representing a 14% increase compared to Q1 FY24, driven by substantial investments in station infrastructure.
- Industrial segment: The industrial segment experienced a notable sales volume increase to 7.25 mmscmd for the quarter ending June 30, 2024. Specifically, the Morbi region saw a significant 37% volume growth, rising from 3.82 mmscmd in Q4 FY24 to 5.21 mmscmd in Q1 FY25. Additionally, the non-Morbi market reported a 2.5% increase in volumes, up from 1.98 mmscmd in Q4 FY24 to 2.03 mmscmd in Q1 FY25. During Q1 FY25, GGL also commissioned new industrial customers with a total of 2 lakh scmd volumes and signed an additional 6.3 lakh scmd industrial volumes that are yet to be commissioned.
- PNG Expansion: The company successfully connected an additional 37,400 homes to piped natural gas (PNG) during Q1 FY25.
- CNG Sales growth: CNG sales within Gujarat increased by 12% year-over-year and by 2% quarter-over-quarter, while sales outside Gujarat surged by 27% and 9% respectively.
- Guidance for Volumes & Capex (Expansion Plan)
- The company expects CNG volume growth of 14%, consistent with the previous year, and an overall volume growth of approximately 10% on a year-on-year basis.Planned capital expenditure for the fiscal year is between ₹1,000-₹1,500 crore, with 40%-45% allocated to new areas and Geographical Areas (GAs), and the remainder focused on consolidating existing positions, particularly in Ahmedabad.
- The primary focus for industrial market development includes regions such as Ahmedabad Rural, Thane, Dadra and Nagar Haveli, and Pitampura (near Indore). For new network development, Gujarat remains a major focus, with areas like Delhi and Mumbai, where CNG is already established, being prioritized.
- Continued Investments in Pipeline Network & CNG Stations
- GGL has provided guidance on setting up over 200 new CNG stations in the next 2-3 years, with 25-30 stations expected to be completed in FY25. This target will be supported by the FDODO (Fully Dealer Owned Dealer Operated) scheme, which involves business partners handling all aspects of CapEx and project management, thereby accelerating the infrastructure development process.
- Investment Summary
- Gujarat Gas Limited’s strong performance in client acquisition, increased volumes, and sales underscore its resilient business model. The company’s focus on new initiatives such as digitization across business operations, expanding CNG infrastructure, and encouraging the Morbi region to switch from propane to PNG, highlights its growth potential. Given the strong financial performance and promising growth prospects, we maintain a positive outlook on Gujarat Gas. However, investors should closely monitor regulatory developments, particularly in the Oil & Gas sector, and the pace of new business expansion.
2) BHARAT FORGE LIMITED
- Bharat Forge Limited (BFL) shows resilience performance this quarter despite market challenges. On a consolidated basis, revenue grew by around 6% year-over-year, reaching Rs. 4,106 crores. EBITDA saw a strong increase of 23%, rising to Rs. 759 crores, while PBT surged by 30% to Rs. 469 crores. EBITDA margins expanded by 260 basis points to 18.5%, with much of this improvement attributed to robust performance from the Indian entities. The consolidated balance sheet remains solid, with ROC progressing toward the company’s target, standing at 18.4% as of June 2024.
- In terms of new business, the company secured contracts worth Rs. 980 crores across multiple sectors, including defense, aluminum, ferrous castings, and core forging, which will likely bolster future growth.
- Growth in Defense segment to exceed 50% in FY25
- The company expects the defense segment to show continued momentum led by substantial demand for artillery in India. Currently, the ATAGS order is anticipated to involve approximately 307 guns and the company is expecting to get a substantial portion of it. Additionally, there is a significant global demand for replacing outdated artillery, presenting substantial opportunities outside India.
- Company to face headwinds in the aluminium segment
- The ongoing weakness in the overseas PV business is expected to impact the aluminum segment in the coming one or two quarters, as this segment is currently fully reliant on the PV market.
- PAT declined 30.9% YoY due to impairment of Investment in TORK
- KPTL a wholly owned subsidiary of BFL reported impairment charges of INR145.6 crores on investment in TORK which was led by funding freeze and negative impact of fame subsidy norms. TORK mangemnt has been working on finding alternative funding options as it not in the business practices of BFL to fund business losses in perpetuity.
- A small decline in the export segment
- The export business remains on course to consolidate its gains over the last three years. BFL is focusing to increase their market share. Euro Plus one strategy diversification is one the reason of market share gains. There are no significant reasons for decline in the near future.
- Â Stability in European Operations with focus on Profitability
- The European operations are not expanding capacity in aluminum forging, but the legacy steel and aluminum forging businesses are seeing improvements in margins. Steel forging is undergoing a rationalization process to focus on profitable areas, including footprint and manpower optimization over the next six to eight months. Meanwhile, the old aluminum forging business is performing well with margins of around 13-14%.
- For the current and next year, the total capital expenditure (capex) for both standalone and consolidated businesses is expected to be approximately ₹1,000 crores.