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Sector Overview – Gas Distribution and prominent stocks in the sector

  • Rudri Rawell
  • Apr 11 2022
  • 8 minutes
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In recent years, the demand and supply of oil and gas in India have increased tremendously. With government initiatives like the Ujjwala scheme, a vast majority of households in the country have a working gas connection which was earlier not possible. Also, the increased use of gas for industrial and commercial purposes has further driven its demand and made India one of the largest importers of gas in the world. 

This increasing demand for natural gas has seen a meteoric rise in the stocks of giants in this industry and also key players in the gas distribution sector. Given below are the details of the prominent stocks in the gas distribution sector and a few related details of this sector as a whole. 

Current scenario of the Gas Sector in India

Before diving into the top stocks in the gas distribution sector, let us first have an overview of the industry as a whole. 

Market size

The Oil and gas sector in India is the 8th largest industry in the country and is also one of the drivers of decision-making for other important sectors of the economy. The consumption of natural gas in the country is expected to hit 143.08 million tonnes by 2040. The annual consumption is expected to grow by 25 billion cubic meters (bcm) which is approximately 9% average annual growth by 2024. The gas consumption CAGR stood at 4.56% for the period between 2015 to 2020.

Increasing demand

This increased demand is on account of the use of natural gas for industrial, commercial as well as residential purposes. The country is taking many measures to support this demand by means of increased production of natural gas in the country as well as a reduction in the imports of the same. India is aiming to become a gas-based economy by increasing the share of natural gas in the energy requirement of the country from 6.3% to 15% by 2030. As part of these measures, the natural gas production in the country was increased by 19.5% in December 2021 as compared to December 2020. 

Expansion by government and other initiatives

The Government of India has taken up many initiatives to promote the oil and gas sector seeing the country’s reliance on it. Some of these initiatives include 

  1. The growing participation of the private sector
  2. Setting up of a committee to work on measures needed that can make natural gas available to power plants at affordable prices. 
  3. An announcement in February 2021 to invest approximately Rs. 7.5 trillion in the oil and gas infrastructure in the following five years.
  4. Commitment to provide further 1,00,00,000 gas connections under the Pradhan Mantri Ujjwala Yojana (PMUY) Scheme.
  5. Plans to set up 5000 compressed biogas plants by 2023. 
  6. Reducing the dependence on imports of oil and gas by 10% by the year 2022.

FDI investment 

One of the major developments in the oil and gas sector is the increased permissible limit of FDI (Foreign Direct Investment) up to 100% through the automatic route. The FDI inflow in the country for the FY 21-22 stood at $27.27 billion which was approximately 62% higher than the previous financial year. The increased investment in the oil and gas sector will give it the much-needed push with respect to the infrastructure needed for gas distribution in this sector. 

What are the factors to consider while investing in gas stocks?

The current global scenario has pushed the oil and gas prices to extreme heights and the impact is seen in the Indian stock markets as well. Some of the key factors that should be considered by investors while investing in stocks from the oil and gas sector are highlighted below. 

Consider the financial performance of the company

The first and foremost step while investing in any company is assessing its financial position. This involves a thorough fundamental analysis of its financial statements and its key financial ratios. This will help the investors evaluate if the stocks are overpriced or underpriced and make suitable investment decisions accordingly. 

Consider the market share and position of the company in the industry 

Another important fact to check is the market share of the company and its relative market position. There are a few key players in this sector and it would be ideal for risk-averse investors to target stocks of such key players rather than taking excessive risks.  

Consider the dividend history of the company 

The oil and gas sector is dominated by government companies. One of the key features of these companies is the dividends distributed to the shareholders. Therefore this is another important factor to be considered while selecting stock from this sector. The stock with the highest dividend payout history is usually preferred by investors. 

Keep track of the relevant market news pertaining to this sector 

Global news has a huge impact on the stock prices of the companies in this sector. Hence, investors need to be aware of the current global scenario and the rapidly changing global prices of crude that have a direct effect on the prices of oil and gas in the country. 

Top stocks in the gas distribution sector as per market capitalization

The gas distribution sector has more than 5000 natural gas distribution companies in the country. However, it is dominated by a few key players. According to the demand and supply for natural gas in the country, the gas distribution sector is expected to grow at a 10% CAGR. There is also an increase in the number of companies that are allowed and have a license for gas distribution in the country which has further increased the public-private participation model in this sector. Some of the key stocks in this sector and their basic details are tabled below. 

Adani Total Gas Limited

Adani Total Gas Limited is one of the major private players in this segment. It was founded in 2004 and has its presence in supplying piped natural gas for industrial, commercial, and residential purposes as well as CNG in the transport sector. The company is one of the largest in terms of market capitalization and the key details of the company are given below.  

CategoryDetails
Market Capitalization Rs. 2,65,477.66 crores
PE Ratio463.47
Return on Equity27.72 (March 2021)
Debt Equity Ratio0.25 (March 2021)
Promotor’s Holdings74.80%
Share priceRs. 2430
Dividend Yield0.01%

IGL

Indraprastha Gas Limited is a Delhi-based government gas distribution company. The gas distribution network of the company covers natural gas for residential and transport purposes. The key financial details of the company are tabled below.

CategoryDetails
Market Capitalization Rs. 27,436.53 crores
PE Ratio18.91
Return on Equity17.90 (March 21)
Debt Equity Ratio0.00 (March 21)
Promotor’s Holdings45%
Share priceRs. 392.05
Dividend Yield0.92%

GAIL

GAIL is a government owned company in India that has a spread of many business segments including natural gas, liquid hydrocarbon, petrochemical, renewable energy, etc. The key financial details of the company include 

CategoryDetails
Market Capitalization Rs. 72,444.88 crores
PE Ratio6.41
Return on Equity8.64 (March 21)
Debt Equity Ratio0.14 (March 21)
Promotor’s Holdings51.80%
Share priceRs. 163.15
Dividend Yield3.06%

MGL

MGL (Maharastra Gas Limited) is also a government entity in this sector and is a venture of GAIL and the Maharastra Government. The company is in the business of supply of CNG for residential purposes and to the transport sector. The key financial details of the company are given below  

CategoryDetails
Market Capitalization Rs. 8,200.53 crores
PE Ratio12.10
Return on Equity20.03 (March 21)
Debt Equity Ratio0.00 (March 21)
Promotor’s Holdings32.50%
Share priceRs. 832
Dividend Yield2.77%

Gujarat Gas Limited

Gujarat Gas Limited is a company incorporated in 1980 by GSPC (Gujarat State Petroleum Corporation) with the aim to acquire and distribute natural gas in the country. The has its primary operations in the state of Gujarat and is also has the largest network of city gas distribution in the country. The key details of the company are given below. 

CategoryDetails
Market Capitalization Rs. 35,589.77 crores
PE Ratio29.64
Return on Equity32.59 (March 21)
Debt Equity Ratio0.20 (March 21)
Promotor’s Holdings60.89%
Share priceRs. 518
Dividend Yield0.39%

Conclusion

The reliance of the country on natural gas is increasing day by day backed by the government’s push in this direction. However, investors should also be cautious of their investments in this sector due to the high volatility of the market and the increasing development in the EV sector as well as electric appliances in the residential sector as an alternative to gas consumption. 

FAQs

Who are the other top players in the gas distribution sector?

A few other players in the gas distribution segment are Bombay Oxygen, National Oxygen, Bhagwati Oxygen, etc.

 What is the focus of the natural gas grid segment in the country?

The country aims to expand the natural gas grid segment to 34500 km through the addition of approximately 17000 km in gas pipelines.

What is the maximum FDI permissible in the oil and gas sector?

The maximum permissible FDI in the oil and gas segment is up to 100% through the automatic route and through the government route.

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