GSPC Gas may pick up stake in Vadodara Gas

Ahmedabad: G S PC Gas Co. Ltd, which is poised to become India's biggest city gas distributor after its planned merger with Gujarat Gas Co. Ltd, is hungry for more.

The company, a subsidiary of Gujarat government-owned Gujarat State Petroleum Corp. Ltd (GSPC), is looking to pick up stakes in Vadodara Gas Co. Ltd (VGCL), which services the Vadodara municipality area, and Sabarmati Gas Ltd (SGL) that supplies gas in three northern districts, four officials close to the development said. All of them declined to be named.

VGCL is a 50:50 joint venture between GAIL Gas Ltd (50%), a subsidiary of GAIL (India) Ltd, and Vadodara Mahanagar Seva Sadan (VMSS), the municipal corporation of Vadodara. GSPC Gas is in advanced talks with GAIL to buy its entire 50% stake.

VGCL was formed in 2013, after the Petroleum and Natural Gas Regulatory Board (PGNRB) directed all city gas distributors to incorporate themselves as companies, in an attempt to promote accountability and transparency. Until then, it was India's oldest city gas distribution, run by the municipal corporation for over 40 years.

VGCL supplies about 85,000-100,000-cu. m of piped gas to over 75,000 households and 3,000 businesses through a 750-km pipeline network. The company, formed with authorized capital of Rs.100 crore, has seven compressed natural gas (CNG) stations.

"The enterprise value of VGCL could easily be anywhere about Rs.350-400 crore; however, we are yet to carry out a proper valuation," said a municipal corporation official.

The firm has planned capital expenditure of Rs.150 crore in the first five years and about Rs.170 crore outlined for expansion.

When contacted, a GAIL spokesperson declined to comment.

A senior Gujarat minister, who did not want to be named, said GSPC Gas was seeking to secure controlling stakes in VGCL and Sabarmati Gas because it would allow quicker expansion and keep a check on gas prices.

GSPC Gas is weighing the option of increasing its stake in Sabarmati Gas. GSPC Gas and Bharat Petroleum Corp. Ltd hold a 25% stake each in the company; IFCI Venture Capital Fund, IDFC Project Equity and Unit Trust of India (UTI) hold a 16.62% stake each.

"The three institutional investors had invested in 2009 and are looking to exit this year. GSPC Gas is keen to pick up their stakes. They had picked up the stake at about Rs.80 crore, leading to an enterprise value of about Rs.160 crore. Today, it would have gone up by a further Rs.100 crore. A valuation process of the enterprise is on. GSPC Gas may even opt to buy BPCL's stake but nothing concrete has happened in that direction yet," said a Sabarmati Gas official on condition of anonymity.

When contacted, a senior official of SBI Caps said the investment bank was carrying out a valuation of Sabarmati Gas, without revealing more information. Calls made to BPCL chairman and managing director S. Varadarajan's office were not returned.

Sabarmati Gas caters to more than 82,500 domestic customers, spread across 12 cities in three districts. It has more than 600 industrial and commercial customers and operates 36 CNG stations.

A stock market listing of all three acquisitions-Gujarat Gas, VGCL and SGL-as a single entity under GSPC Gas is also planned for a later stage, according to two senior government officials.

"Gujarat Gas Co. and GSPC Gas shall be merged this year. As a result, the company shall emerge as the biggest gas distribution company in the entire country," said Saurabh Patel, state finance minister, while presenting the state budget early this year.

GSPC Gas supplies natural gas to more than 500,000 domestic households, 1,950 commercial and non-commercial segments and 1,920 industrial customers. The company recently received a long-pending approval to enter more areas in the state. It has initiated the process of providing 50,000 gas connections in Jamnagar and Bhavnagar as well as East and West Kutch.

Together, the four distributors-GSPC Gas, Sabarmati Gas, VGCL and Gujarat Gas-supply 11 million standard cu. m per day (mscmd) of piped natural gas to over one million households, 13,000 factories and businesses, and operate about 260 CNG stations across 550 cities, towns and villages in 20 districts of Gujarat.

Consumption of natural gas grew at a compounded annual growth rate (CAGR) of 6% over the previous five years to 158 million standard cu. ft per day in 2012-13 from 118 million standard cu. ft per day in 2007, driven by growth in sectors such as power, fertilizers and city gas distribution, according to a March 2014 Crisil Research report on natural gas output from 2013-14 to 2017-18.

Natural gas demand growth is expected to moderate to a CAGR of 4% over the next five years to 196 mscmd in 2017-18, it says. The pace of growth will be slower, particularly over the next two to three years, on account of constraints in domestic gas prices and rising domestic and liquefied natural gas prices.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.