Gail India is eyeing the controlling stake in British gas major BG’s subsidiary in Gujarat, the country’s biggest natural gas market, as the state-run company prepares to compete with oil major BP and Reliance in the gas marketing business.
BG, one of the first western companies to invest in India’s energy sector, is selling its 65% stake in Gujarat Gas Co (GGCL), the country’s largest private sector gas transmission and distribution firm. BG had acquired the stake for . 170 crore in 1997, while the current market value of the company is about . 5,000 crore.
“We are exploring the opportunity right now as it could be a good strategic fit,” a senior Gail India executive, who did not want to be identified, told ET. A company spokesman confirmed Gail’s interest in the BG’s stake but said it was premature to comment further. The two companies are already partners in Mahanagar Gas, which distributes gas in Mumbai.
Gail has been scouting for opportunities to expand its city gas distribution (CGD) business, which is very profitable as natural gas works out much cheaper than petrol and diesel.
For households, piped gas is competitively priced and saves consumers the trouble of booking and replacing LPG cylinders. Company officials and analysts said Gail was eyeing Gujarat Gas’ network of pipelines and customers. It distributes about 3.6 million metric standard cubic meters per day (mmscmd) of natural gas to nearly 3.30 lakh customers, including industrial, commercial and domestic, through a 3,200-km pipeline network.
It also supplies compressed natural gas to 1.61 lakh vehicles through 42 retail outlets. BG may have decided to exit because the business was not growing fast, analysts said. “I don’t think BG’s main aim behind this exit is to raise funds, it had more to do with the fact that it has not been able to grow its operations beyond the small cities of Gujarat in all these long years that its been in India. So, clearly the management has taken a call and said that it does not want to invest any more resources in an operation which is not scaling up as desired,” said Sanjeev Prasad, executive director at Kotak Securities.
But for Gail, the company remains attractive, analysts said. “The deal could fortify Gail against the competitive onslaught expected from RIL-BP’s city gas venture, especially as BG has a very large and loyal client list in Gujarat,” said Deepak Pareek, oil and gas analyst, Prabhudas Lilladher.
BP has bought 30% in Reliance’s 21 oil and gas blocks in a $7.2-billion deal, and the two companies are eyeing the gas market with a 50:50 joint venture. “The deal makes a lot of sense for Gail, especially as it will be taking over a large operation that will generate cash-flow from day one instead of starting from scratch, also sourcing gas should not be a problem for Gail as it is a stake-holder in Petronet LNG and Dabhol,” Pareek said. Courtesy
BG, one of the first western companies to invest in India’s energy sector, is selling its 65% stake in Gujarat Gas Co (GGCL), the country’s largest private sector gas transmission and distribution firm. BG had acquired the stake for . 170 crore in 1997, while the current market value of the company is about . 5,000 crore.
“We are exploring the opportunity right now as it could be a good strategic fit,” a senior Gail India executive, who did not want to be identified, told ET. A company spokesman confirmed Gail’s interest in the BG’s stake but said it was premature to comment further. The two companies are already partners in Mahanagar Gas, which distributes gas in Mumbai.
Gail has been scouting for opportunities to expand its city gas distribution (CGD) business, which is very profitable as natural gas works out much cheaper than petrol and diesel.
For households, piped gas is competitively priced and saves consumers the trouble of booking and replacing LPG cylinders. Company officials and analysts said Gail was eyeing Gujarat Gas’ network of pipelines and customers. It distributes about 3.6 million metric standard cubic meters per day (mmscmd) of natural gas to nearly 3.30 lakh customers, including industrial, commercial and domestic, through a 3,200-km pipeline network.
It also supplies compressed natural gas to 1.61 lakh vehicles through 42 retail outlets. BG may have decided to exit because the business was not growing fast, analysts said. “I don’t think BG’s main aim behind this exit is to raise funds, it had more to do with the fact that it has not been able to grow its operations beyond the small cities of Gujarat in all these long years that its been in India. So, clearly the management has taken a call and said that it does not want to invest any more resources in an operation which is not scaling up as desired,” said Sanjeev Prasad, executive director at Kotak Securities.
But for Gail, the company remains attractive, analysts said. “The deal could fortify Gail against the competitive onslaught expected from RIL-BP’s city gas venture, especially as BG has a very large and loyal client list in Gujarat,” said Deepak Pareek, oil and gas analyst, Prabhudas Lilladher.
BP has bought 30% in Reliance’s 21 oil and gas blocks in a $7.2-billion deal, and the two companies are eyeing the gas market with a 50:50 joint venture. “The deal makes a lot of sense for Gail, especially as it will be taking over a large operation that will generate cash-flow from day one instead of starting from scratch, also sourcing gas should not be a problem for Gail as it is a stake-holder in Petronet LNG and Dabhol,” Pareek said. Courtesy
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