Top 6 Natural Gas Distribution Companies in Indian Stock Market

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Which are the top 6 Natural Gas distribution companies in India? Quantitative analysis of Indian Natural Gas sector based on 10 parameters.

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 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 government on environment friendly fuel.

In current times, 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 analysed quantitatively in current times.

Please note that this analysis is done with the only purpose of screening good companies. Analysis done is completely on 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 decision based on risk profile.

Model Portfolios by Invest Yadnya
Model Portfolios by Invest Yadnya

Natural Gas Sector Quantitative Analysis

Companies selected for analysis

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

  • Indraprastha Gas
  • Gujarat State Petronet
  • Petronet LNG
  • Gujarat Gas
  • Mahangar Gas
  • Adani Gas
Procedure of Analysis and its Interpretation
  • These 6 companies are analysed on following 10 parameters and given ranks and points accordingly. For example, if a company has 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 lowest points and 6 means the company has scored highest points.
  • At the end, sum of all the points is taken and companies are again ranked on the basis of maximum points scored by each company.
1. PE
CompanyMarket Cap (Rs. Crore)PE RankPoints
Indraprastha Gas₹27,66422.1452
Gujarat State Petronet₹11,6107.1816
Petronet LNG₹38,27314.1825
Gujarat Gas₹20,95120.4644
Mahanagar Gas₹9,57714.3233
Adani Gas₹17,88845.261
  • 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 lowest PE and hence its rank is 1 and points are 6.
2. RoCE
CompanyROCERanksPoints
Indraprastha Gas32.0%43
Gujarat State Petronet37.1%16
Petronet LNG28.2%61
Gujarat Gas29.1%52
Mahanagar Gas36.6%25
Adani Gas34.5%34
  • 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 highest RoCE and hence is ranked 1 and has scored highest points.
  • Petronet LNG has the least RoCE among the six companies and hence it is ranked 6 and has scored 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
CompanyROERanksPoints
Indraprastha Gas25.8%52
Gujarat State Petronet42.3%25
Petronet LNG25.8%52
Gujarat Gas43.4%16
Mahanagar Gas29.7%43
Adani Gas33.5%34
  • 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 highest RoE of ~43% ,hence it is ranked at no.1 position as well as scored highest points. Gujarat State Petronet is at second position.
  • Petronet LNG and Indraprastha Gas have lowest RoEs and hence given lower points.
4. Debt to Equity (D/E)
CompanyD/ERanksPoints
Indraprastha Gas0.0216
Gujarat State Petronet0.4952
Petronet LNG0.3143
Gujarat Gas0.5761
Mahanagar Gas0.0216
Adani Gas0.2734
  • Natural gas sector is a capital intensive sector and hence it is normal for companies to have moderate debt.
  • Indraprastha Gas and Mahangar 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 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 company is using its capital effectively.
5. Interest Coverage Ratio
CompanyInt. Cov RatioRanksPoints
Indraprastha Gas192.716
Gujarat State Petronet7.252
Petronet LNG8.743
Gujarat Gas6.161
Mahanagar Gas118.625
Adani Gas13.334
  • 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 Mahangar 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 lowest Interest coverage ratio, hence it is ranked lowest.
  • However, looking at the overall sector level despite being capital intensive industry, all the companies have healthy interest coverage ratios. Usually interest coverage ratio above 2.5 x is considered healthy.
6. Operating Profit Margin
CompanyOPMRanksPoints
Indraprastha Gas23.4%43
Gujarat State Petronet26.7%34
Petronet LNG12.1%61
Gujarat Gas15.4%52
Mahanagar Gas34.6%16
Adani Gas33.1%25
  • Overall on a sector level, most of the companies have strong operating margins of 25% and above.
  • Mahangar Gas, even though PSU company has 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
Company5 year Sales growthRanksPoints
Indraprastha Gas12.0%25
Gujarat State Petronet63.0%16
Petronet LNG-2.2%61
Gujarat Gas2.7%52
Mahanagar Gas7.3%34
Adani Gas7.0%43
  • 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 a degrowth of 2.2% and hence it is ranked at lowest position.
8. 5-Year Net Profit growth
Company5 Year Net Profit growthRanksPoints
Indraprastha Gas22.8%43
Gujarat State Petronet28.5%25
Petronet LNG26.0%34
Gujarat Gas21.7%52
Mahanagar Gas21.5%61
Adani Gas35.3%16
  • 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 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.
  • Mahangar Gas comparatively has lower profit growth and hence it is ranked at lowest position.
9. 3-Year Sales growth
Company3- year Sales growthRanksPoints
Indraprastha Gas19.4%43
Gujarat State Petronet27.5%16
Petronet LNG12.9%61
Gujarat Gas26.5%25
Mahanagar Gas13.5%52
Adani Gas19.9%34
  • 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
Company3- year Net Profit growthRanksPoints
Indraprastha Gas27.2%43
Gujarat State Petronet46.1%34
Petronet LNG16.9%61
Gujarat Gas74.1%16
Mahanagar Gas26.4%52
Adani Gas62.8%25
  • Overall all the companies have robust net profit growth.
Final Points
Ranks as per Quantitative Analysis
  • As seen, Gujarat State Petronet has scored highest points in the overall quantitative analysis and hence has secured 1st rank, followed by Adani Gas, Mahangar Gas, Indraprastha Gas, Gujarat Gas and Petronet LNG.
  • However, please note that this is the overall quantitative analysis of the sector based on few valuation and financial parameters. We have not considered other qualitative parameters like corporate governance, etc in this analysis. Hence, one should not take this as an investment advice.
  • This is just an overview of the sector and investors should perform detailed analysis before investing in any of these companies.

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