Indian city gas distribution companies are expected to record a notable improvement in operating profitability this financial year, with margins estimated at Rs. 7.2–Rs. 7.5 per standard cubic metre (scm), according to a Crisil Ratings analysis released on Thursday.
The projected increase of 8–12% marks a recovery from the latter half of the previous fiscal, when profits were squeezed by a sharp cut in administered price mechanism (APM) gas allotted to the compressed natural gas (CNG) segment.
The reduction in APM supply had forced companies to rely heavily on spot purchases, driving up procurement costs.
Crisil noted that CGD firms have since turned to more stable contracted gas arrangements, which are expected to help restore profitability and reduce exposure to volatile market prices.
The agency assessed seven major CGD companies that together accounted for about 70% of total sales volumes last fiscal.
“Stronger earnings will help maintain comfortable leverage levels despite ongoing capital expenditure plans,” Crisil said.
Under the APM, CGD networks receive lower-priced domestic gas to cater to the CNG and piped natural gas–domestic (PNG-D) markets.
When APM allocation fell below 40% of total CNG demand in the second half of last fiscal — compared with about 70% in the first half — companies were pushed to buy significantly costlier spot gas, which is typically 80–100% more expensive.
This shift raised spot gas’s share in overall supply from roughly 5% to more than 15%.
Crisil Ratings Director Ankit Hakhu said companies have now secured 15–20% long-term domestic allocations from new-well gas and have supplemented the rest through additional medium- and long-term contracts, largely for HPHT gas and regasified LNG.
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This transition, he said, improves supply assurance and shields them from paying average premiums of 25–30% prevalent in the spot market.
The report also highlighted that selling prices have stabilised this year after CGD firms implemented phased price hikes in the latter half of last fiscal to offset a portion of rising input costs.
However, lower gas procurement expenses will not fully translate into higher profitability, as operating costs are set to increase.
Companies continue to invest heavily in expanding pipeline networks and related infrastructure across existing and newly awarded geographical areas, a move intended to support long-term volume growth.
