gagan gases ltd Management discussions


1. Industry Structure and development.

The companys main business was that of LPG marketing after bottling into cylinders and trading of lubricants. Total LPG business is in the hands of Govt. owned oil companies who are placed at a advantageous position because of sale at a subsidised price. There is revival of LPG business in a small way because of the recent change of policy in selling LPG by Govt owned oil companies.

2. Opportunities & Threats

Because of the subsidy given by Govt, oil companies have monopolized LPG business. Recently the govt. has announced new distribution policy of sale of LPG by Govt owned companies. This policy too is not open market policy and LPG Bottling plants in private sector are still facing resistance from the customers because of higher sale rate. This policy of the Govt. is a threat towards the business opportunities of LPG Bottling Plants in private sector. Company has started marketing activities in lubricants and other products during the year.

3. Outlook

Private sector LPG bottling plants cannot compete with Govt. oil companies who sell LPG at subsidized and Govt. controlled rates to domestic consumers. Since Govt owned oil companies sell at a much cheaper rate, people have tendency to take new connection and refilling from them. The future of LPG bottling plants is linked with Govt. policies. It is only when subsidy is completely abolished, and Govt. control over sale rate of LPG by public sector oil companies is lifted, the LPG bottling plants in private sector can look for some business. Untill that time, it is not possible to forecast any future prospects. Govt. has its own political compulsions to take decision for abolishing subsidy and allow the govt. owned oil companies to fix prices in line with international rates.

The company is making efforts to revive sale of LPG to commercial segment and have started marketing LPG to industrial & commercial customers but the response is not encouraging. Company has entered into an agreement with LPG Infrastructure India Ltd. for filling of their LPG cylinders on contract basis. To cover up the losses the company has also started trading activities for marketing of industrial consumables.

4. Risk and concerns.

Govt. decision to continue price control and allowing subsidy on LPG to Govt. owned oil companies to demostic comsumers and fluctuations in prices of petroleum products in international market are matters of great risk and concern to the company.