Propane Erodes Gas Demand as Gujarat Energy Faces Pricing Challenge
Gujarat Energy Ltd is facing a challenge in its gas for industry segment due to changing consumption patterns. The company's market capitalization stands at Rs. 24,619 Crores, with shares trading at around Rs. 264 per share, which is a 33 percent discount from its 52-week high of Rs. 392 per share and a P/E ratio of 12.6 compared to the industry average of 15.2.
The key issue for Gujarat Energy now is not the availability of gas but its economic viability. The landed cost of natural gas is at ₹90 per scm, which is equivalent to the cost of propane at ₹91 per scm. This price parity has led to a shift in consumption patterns among Morbi ceramic manufacturers.
According to the Morbi Ceramic Association, the prices for industrial gas from Gujarat Energy have risen by 60-70% since the beginning of the war. In August, about 40% of gas purchases were from Gujarat Energy, while the remaining 60% was from propane. However, in September, the association expects this ratio to change drastically, with around 80% of gas purchases coming from propane and only 20% from Gujarat Energy.
The increased adoption of propane raises questions about whether Morbi is an isolated instance or a larger pattern in industrial gas consumption. If similar industrial concentrations find it economically viable to replace natural gas with propane, this could emerge as a competitive challenge for Gujarat Energy. However, the effect should be considered more as displacement rather than complete withdrawal from the market.