Top 6 Natural Gas Distribution Companies in Indian Stock Market

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Quantitative Analysis of Natural Gas Sector

Introduction

In this blog, we will do a quantitative analysis of natural gas distribution companies on 10 parameters listed on the Indian stock exchange. Currently, natural gas makes up ~6% of the entire energy consumption in India. However, India may see this contribution rising to ~10% by 2025 and ~15% by 2030 due to the massive push given by the government on environment-friendly fuel.

In current times, the Natural gas sector is not impacted much due to the pandemic and hence quantitative valuation can be done, whereas other sectors like hospitality, travel, etc that are severely impacted by pandemic cannot be analyzed quantitatively in current times.

Please note that this analysis is done with the only purpose of screening good companies. The analysis done is completely on a quantitative basis. No suggestions are being made to directly go and invest in the top-scoring companies of this analysis. We suggest that one should perform a qualitative analysis of top-scoring companies in this analysis and take investment decisions based on risk profile.

 

Natural Gas Sector Quantitative Analysis

Companies selected for analysis:

We have selected the following 6 companies in the natural gas sector for our analysis

  • Indraprastha Gas
  • Gujarat State Petronet
  • Petronet LNG
  • Gujarat Gas
  • Mahangar Gas
  • Adani Gas
The procedure of Analysis and its Interpretation
  • These 6 companies are analyzed on the following 10 parameters and given ranks and points accordingly. For example, if a company has a higher PE ratio, it is ranked lower, hence has scored lesser points. Similarly, if a company has higher RoE, it is ranked higher and has scored higher points.
  • Here, 1 means that the company has scored the lowest points and 6 means the company has scored the highest points.
  • In the end, the sum of all the points is taken and companies are again ranked on the basis of maximum points scored by each company.
Also Read on FinMedium:  Importance of RoE and RoCE in stock analysis
1. PE
Company Market Cap (Rs. Crore) PE Rank Points
Indraprastha Gas ₹27,664 22.14 5 2
Gujarat State Petronet ₹11,610 7.18 1 6
Petronet LNG ₹38,273 14.18 2 5
Gujarat Gas ₹20,951 20.46 4 4
Mahanagar Gas ₹9,577 14.32 3 3
Adani Gas ₹17,888 45.2 6 1
  • PE is basically how much an investor pays for each rupee of profit earned.
  • Here, Adani Gas has the highest PE mainly as it is a private sector company and hence commands premium valuation.
  • Similarly, Gujarat State Petronet has the lowest PE and hence its rank is 1 and points are 6.
2. RoCE
Company ROCE Ranks Points
Indraprastha Gas 32.0% 4 3
Gujarat State Petronet 37.1% 1 6
Petronet LNG 28.2% 6 1
Gujarat Gas 29.1% 5 2
Mahanagar Gas 36.6% 2 5
Adani Gas 34.5% 3 4
  • RoCE is one of the return ratios commonly used in fundamental analysis. RoCE is given as Earnings before Interest and Taxes (EBIT)/ Total Capital Employed (Debt+Equity)
  • It gives us a perspective of how the company is earning profits by allocating its overall capital. So higher the RoCE, the better.
  • Here, Gujarat State Petronet has the highest RoCE and hence is ranked 1 and has scored the highest points.
  • Petronet LNG has the least RoCE among the six companies and hence it is ranked 6 and has scored the lowest points.
  • Looking at overall RoCE of the companies, we can say that even after being a capital intensive sector, all the companies have healthy return ratios.
3. RoE
Company ROE Ranks Points
Indraprastha Gas 25.8% 5 2
Gujarat State Petronet 42.3% 2 5
Petronet LNG 25.8% 5 2
Gujarat Gas 43.4% 1 6
Mahanagar Gas 29.7% 4 3
Adani Gas 33.5% 3 4
  • Another return ratio that is used widely in fundamental analysis is Return on Equity (RoE) which is given as Net Income/ Total Shareholder’s equity (Equity share capital + Reserves/Surplus)
  • Gujarat Gas has the highest RoE of ~43%, hence it is ranked at no.1 position as well as scored highest points. Gujarat State Petronet is at the second position.
  • Petronet LNG and Indraprastha Gas have the lowest RoEs and hence given lower points.
Also Read on FinMedium:  Don’t Confuse Good PE Ratio Of Index VS Good PE Ratio For Stocks
4. Debt to Equity (D/E)
Company D/E Ranks Points
Indraprastha Gas 0.02 1 6
Gujarat State Petronet 0.49 5 2
Petronet LNG 0.31 4 3
Gujarat Gas 0.57 6 1
Mahanagar Gas 0.02 1 6
Adani Gas 0.27 3 4
  • The natural gas sector is a capital intensive sector and hence it is normal for companies to have moderate debt.
  • Indraprastha Gas and Mahanagar Gas have negligible D/E of 0.02 and hence are at rank no.1 and have scored highest points.
  • Gujarat Gas has highest D/E and hence it has scored the lowest points.
  • However, D/E should be considered along with other parameters like return ratios, Interest coverage ratios, etc.
  • Here, even though Gujarat State Petronet has higher D/E, it has healthy return ratios, which indicates that the company is using its capital effectively.
5. Interest Coverage Ratio
Company Int. Cov Ratio Ranks Points
Indraprastha Gas 192.7 1 6
Gujarat State Petronet 7.2 5 2
Petronet LNG 8.7 4 3
Gujarat Gas 6.1 6 1
Mahanagar Gas 118.6 2 5
Adani Gas 13.3 3 4
  • The interest coverage ratio is given by Earnings before Interest and Taxes (EBIT)/ Interest expense.
  • This ratio gives the ability of the company to pay interest from its operating profit.
  • Since Indraprastha Gas and Mahanagar Gas have lowest D/E, their Interest coverage ratios are also healthy and hence are ranked at no.1 and 2 positions respectively.
  • Gujarat Gas having highest D/E has the lowest Interest coverage ratio, hence it is ranked lowest.
  • However, looking at the overall sector level despite being a capital intensive industry, all the companies have healthy interest coverage ratios. Usually, interest coverage ratio above 2.5 x is considered healthy.
Also Read on FinMedium:  Which are safe banks for Fixed Deposits in India (2020-21)?
6. Operating Profit Margin
Company OPM Ranks Points
Indraprastha Gas 23.4% 4 3
Gujarat State Petronet 26.7% 3 4
Petronet LNG 12.1% 6 1
Gujarat Gas 15.4% 5 2
Mahanagar Gas 34.6% 1 6
Adani Gas 33.1% 2 5
  • Overall on a sector level, most of the companies have strong operating margins of 25% and above.
  • Mahanagar Gas, even though PSU company has the highest operating profit margins of ~34%, hence it is ranked at no.1 position and has highest points.
  • Petronet LNG has lowest operating profit margin of 12% , hence it is ranked at no.6 and scored lowest points.
7. 5-Year Sales Growth
Company 5 year Sales growth Ranks Points
Indraprastha Gas 12.0% 2 5
Gujarat State Petronet 63.0% 1 6
Petronet LNG -2.2% 6 1
Gujarat Gas 2.7% 5 2
Mahanagar Gas 7.3% 3 4
Adani Gas 7.0% 4 3
  • Gujarat State Petronet has a robust sales growth of 63% CAGR over 5 years, hence it is ranked at no.1 position and has cored highest points.
  • Petronet LNG has shown degrowth of 2.2% and hence it is ranked at the lowest position.
8. 5-Year Net Profit growth
Company 5 Year Net Profit growth Ranks Points
Indraprastha Gas 22.8% 4 3
Gujarat State Petronet 28.5% 2 5
Petronet LNG 26.0% 3 4
Gujarat Gas 21.7% 5 2
Mahanagar Gas 21.5% 6 1
Adani Gas 35.3% 1 6
  • As seen, all the companies have posted healthy net profit growth over 5 years. This growth despite muted sales growth is mainly because of the higher operating efficiencies which is evident from healthy operating profit margins.
  • Adani Gas has the highest net profit growth over 5 years mainly on the back of improved operating efficiencies, hence it is ranked at no.1 position and has scored highest points.
  • Mahanagar Gas comparatively has lower profit growth and hence it is ranked at the lowest position.
9. 3-Year Sales growth
Company 3- year Sales growth Ranks Points
Indraprastha Gas 19.4% 4 3
Gujarat State Petronet 27.5% 1 6
Petronet LNG 12.9% 6 1
Gujarat Gas 26.5% 2 5
Mahanagar Gas 13.5% 5 2
Adani Gas 19.9% 3 4
  • Gujarat State Petronet has robust sales growth over last 3 years and hence it is ranked at no.1 position.
  • Petronet LNG has lowest sales growth over last 3 years and hence it is ranked at lowest position.
10. 3-Year Profit growth
Company 3- year Net Profit growth Ranks Points
Indraprastha Gas 27.2% 4 3
Gujarat State Petronet 46.1% 3 4
Petronet LNG 16.9% 6 1
Gujarat Gas 74.1% 1 6
Mahanagar Gas 26.4% 5 2
Adani Gas 62.8% 2 5
  • Overall all the companies have robust net profit growth.
Final Points



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