A sharp drop in the spot liquified natural gas (LNG) price, coupled with a regulatory order to push green energy in the ceramics industry, has provided the debt-laden State-run Gujarat State Petroleum Corporation Ltd (GSPC) a fresh lease of life.

The National Green Tribunal (NGT) in March this year had ordered closure of coal gasifiers in ceramics units in the Morbi district in Gujarat. It has unlocked the huge demand for natural gas, thereby triggering a chain of positive cycle for GSPC and its group companies, including city gas distribution player Gujarat Gas Ltd (GGL) and gas transmission arm, Gujarat State Petronet Ltd (GSPL).

“In the prevailing depressed market conditions, these three PSUs of Gujarat government have emerged shining stars with remarkable growth in profits. Normally, in the May-June period there is very thin gas requirement. But this time, with the NGT order in force the gas demand has seen a spurt. Also, the sharp drop in LNG prices in the past six-eight months has supported the demand,” a top GSPC official told BusinessLine .

The two listed entities, GSPL and GGL, have posted 53 per cent and 90 per cent growth, respectively, in net profit for the quarter ended June 2019.

The parent GSPC has recorded 22 per cent growth in gas marketing volume in April-June quarter of 2019-20. The turnover during the period increased marginally to ₹3,739 crore (₹3,675 crore), while profit jumped multi-fold to ₹277 crore (₹34 crore) on a sharp drop in LNG prices from about $11-12 per mmBtu in September-October last year to the recent range of $5 mmBtu.

“With increased business and lower LNG prices, our profits have turned attractive and the whole integrated GSPC group of gas trading to CGD (city gas distribution) has emerged as a well-oiled machine, capable to service our debts,” the official said.

GSPC Group has ramped up its infrastructure for supply of gas from 3.25 mmscmd to 7 mmscmd within three months.

An HDFC Securities analyst report on GGL indicated that the positive cycle may continue for GGL as volume increase in Morbi ceramic units is sustainable. Tile makers in Morbi constitute about 70 per cent of GGL’s total industrial volume of about 7.16 mmscmd. “The strong demand of this cluster is attributable to low spot LNG prices, robust export demand from the Middle-East, Russia and Europe and NGT’s order that compels shifting to natural gas,” it stated. This rise in volume will also be reflected in the transmission business of GSPL and trading business of GSPC, resulting into higher earnings for the group.

Notably, in September 2018, the Comptroller and Auditor General of India (CAG) had estimated the total loss of GSPC for 2016-17 at ₹17,061 crore.

Till 2017-18, GSPC had a negative networth with operational losses and a debt of ₹24,500 crore. But after a successful financial restructuring, the debt was reduced to about one-third (approximately ₹7,000 crore) and achieved positive networth with PAT of ₹250 crore in 2018-19.

As part of the financial restructuring, GSPC group had been selling its stake in multiple ventures, including at ambitious Deen Dayal Block in Krishna-Godavari Basinand subsidiary Gujarat Gas.

The current debt level is seen as “manageable” even as it continues to implement other measures to further pare its debt.

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