Gujarat Gas Ltd Management Discussions

The Management Discussion & Analysis is as under:

1. INDUSTRY STRUCTURE AND DEVELOPMENTS

Natural gas is considered a relatively clean-burning fossil fuel compared to coal and oil, producing fewer emissions of air pollutants and carbon dioxide (CO2) when burned to produce an equal amount of energy.

Natural Gas is the cleanest and most efficient of the fossil fuels and is a smart energy choice. Not only does it supplement renewable energy, such as wind and solar, but it also has a smaller carbon footprint than other fossil fuels. Natural Gas is used as a feedstock in several industries like fertilizers, plastics and other commercially important organic chemicals and used as a fuel for electricity generation, heating purpose in industrial and commercial units. Natural gas is also used for cooking in domestic households and as a transportation fuel for vehicles.

Escalating conflict in the Middle East and Russias continued war in Ukraine have global attention sharply focused on some of the worlds most important energy-producing regions. While some of the acute impacts of the global energy crisis have receded, geopolitical uncertainty is exposing the underlying fragilities of the global energy system, regardless of technology or geography. Energy infrastructure is also facing increasing risks from extreme weather events that are becoming an all too common aspect of life for people around the world.1 Currently, natural gass share in Indias energy mix is around 6%. The government aims to increase this share to 15% by 2030. This is part of a broader plan to transition to a cleaner energy system and reduce reliance on polluting fossil fuels. The government is pursuing several initiatives to boost natural gas consumption, including expanding the National Gas Grid, expanding the City Gas Distribution (CGD) network, setting up Liquefied Natural Gas (LNG) terminals, promoting Compressed Natural Gas (CNG) and Piped Natural Gas (PNG). The Government has also set the target to achieve net-zero emissions by 2070. India also aims to raise its non-fossil energy capacity to 500 GW by 2030 while meeting 50 per cent of its energy demand through renewables. India has also committed to reducing 1 billion tonnes of projected emissions from now till 2030 and achieving carbon intensity reduction of 45 per cent over 2005 levels by 2030.2

Indias natural gas consumption is forecast to increase by nearly 60% by 2030, driven by robust growth in city gas distribution, industrial demand and power generation. Targeted strategies and policy interventions could boost gas consumption beyond the forecasted trajectory to around 120 bcm/yr by 2030, close to the current gas consumption of the entire continent of South America. Inter-fuel competition is particularly strong in India, with natural gas vying against coal, oil and renewables in several gas-consuming sectors. This means that even small changes in global gas prices can significantly impact domestic consumption patterns. This price sensitivity underscores the need for competitive pricing to enable natural gas adoption.

Indias LNG imports are set to more than double between 2023 and 2030, driven by steady demand growth and a much slower rise in domestic production. Between 2013 and 2023, Indias LNG imports increased by 70%, and reached 36 bcm in 2024, matching the previous record set in 2020 and cementing the countrys position as the fourth-largest LNG importer globally. Looking ahead, Indias LNG demand is projected to grow steadily, reaching 64 bcm/yr by 2030. This represents an annual average growth rate of 11% for the 2023-2030 period, twice the average rate observed in the previous ten years.3 Consumption of Natural Gas (including internal consumption) with a volume of 72.293 BCM (billion cubic meters) during the Financial Year 2024-25 registered more than 7% growth year-on year basis over the volume of 67.512 BCM during Financial Year 2023-24. During the FY 24-25, consumption of Natural Gas (NG) was driven by fertilizer (29%) followed by CGD (21%), Power (12%) Refinery (8%), Petrochemicals (5%). Miscellaneous sectors occupied a share of 25%. Fertilizer sector occupied the highest share for the Consumption of Natural Gas at 29%. The CGD sector share has remained steady at 21%, power sector has slightly reduced from 13% to 12%.4

During the FY 2024-25 crude oil prices had shown declining trend and has seen low of $72.02 per barrel in March 2025 and high of $89.44 per barrel in April 2024, a decline of almost 24% with >$17 per barrel downward movement for Indian basket. By the end of financial year the prices had decline to $72.02 with year average of $78.56.5

2. OPPORTUNITIES AND THREATS

The Indian government is promoting natural gas usage through various initiatives, including expanding the National Gas Grid Pipeline, City Gas Distribution (CGD) network and Liquid Natural Gas (LNG) Terminals. The government also provides subsidies to encourage natural gas consumption and has implemented policies to increase domestic production and ensure affordable gas prices for key sectors like transportation and domestic use.

A scheme has also been launched to develop pipeline infrastructure for the injection of Compressed Biogas (CBG) into the CGD network, facilitating the use of renewable biogas in the gas grid. Government has announced phase wise mandatory selling of CBG in CNG (T) and PNG (D) segment of CGD network to promote the production and utilization of CBG. As per CBG Obligation (CBO) is presently voluntary till FY 2024-2025 and mandatory selling obligation would start from FY 2025-26. CBO shall be kept as 1%, 3% and 4% of total CNG/PNG consumption for FY 2025-26, 2026-27 and 2027-28 respectively. From 2028-29 onwards CBO will be 5%.

Further, to cater the growing demand of CGD sector and to protect the common people from price volatility, the Government has released new CGD sector Gas allocation Guidelines wherein the allocation of PNG (Domestic) segment was increased (i.e. 105% of PNG (Domestic) consumption in the previous quarter) and balance available volume to be supplied to CNG (T) segment on prorate basis.

The revised methodology has been helpful for the CGD entity as the lag between the allocation and reference period has been reduced from average of 6 months to average of 3 months which reflects a more realistic consumption data. With the declining natural gas production from aging fields of Oil and Natural Gas Corporation (ONGC), a cut in Administered Pricing Mechanism (APM) gas supplies by up to 20%, effective from April 16, 2025 was notified. ONGC is offsetting the natural gas decline in output from ageing gas fields by drilling new wells. However, gas from these new wells is sold at a higher price to cover the added costs.

As per the recent media reports, allocation will also now include New Well Gas (NWG) from nomination fields of the two state explorers, ONGC, and Oil India (OIL), with auction-based allocation for New Well Gas being replaced with a quarterly pro-rata allocation, to ensure timely and reliable supply. With both Administered Pricing Mechanism gas and New Well Gas prices linked to Indian crude basket prices, which are calculated monthly, the government sees the allocation of domestic gas to make natural gas more affordable for CNG (T) and PNG (Domestic) consumers after recent decline in crude prices. Gas from new wells drilled by ONGC in the same nomination fields is priced at 12 per cent of the Indian crude oil basket.

Similar to any other business, the Company faces challenges in the form of stiff competition from other fuels due to accessibility and availability. The fuel also faces risk in the form of disparity in the tax structure compared to alternate fuels as PNG and CNG (T) are still out of GST ambit. In FY 24-25, the Indian City Gas Distribution (CGD) sector faced challenges primarily related to gas availability and pricing, particularly due to declining APM gas allocations and rising import dependence. Infrastructure constraints, including pipeline expansion and secure pricing, also hindered the growth. The availability of cheaper APM gas had decreased during FY 2024-25, impacting CGD company margins. This has led to a shift towards more expensive HPHT (High Pressure High Temperature) gas, New Well Gas and RLNG. The reduced APM gas allocations had put greater reliance on imported LNG, making the sector more susceptible to price volatility and higher costs. The rising costs of imported gas and reduction in APM gas had forced the CGD companies to pass on some of the increased costs through increase in CNG (T) prices. The comparison to alternate fuel price may limit the CGD entities to pass on any further increase in gas costs. During the year, the Spot LNG (West India Marker) prices have fluctuated from a low of $8 per mmbtu to $17% per mmbtu. The high fluctuations has led to uncertainty in prices to Industrial customers thereby impacting volumes during the year. The reduction in crude prices shall immediately lower the alternate fuel prices thereby affecting volumes in the short term. However, in the medium term, as the NG prices have a lag of 3-6 months to crude prices, the price differential between NG and alternate fuel is expected to reduce considerably. Notwithstanding these, your Company shall continue to focus placing environmentally clean Natural Gas to affordable markets for sustainable growth. Further, PNGRB had also issued a Public Notice in January 2025 pertaining to declaration of 71 CGD networks as Common Carrier or Contract Carrier out of which 19 GAs are authorized to your Company. This was webhosted pursuant to the hearing held in December 2024 at PNGRB office. Your Company has responded to the PNGRB Public Notice and views shared by other stakeholders in the said matter.

Your Company has completed the Minimum Work Program (MWP) targets as applicable viz. PNG (Domestic) connections, Pipeline Inch- km laid, Compression Capacity and CNG Stations in the Geographical Areas (GA) of Surat-Bharuch-Ankleshwar, Valsad, Union Territory of Dadra and Nagar Haveli, Dahej-Vagra Taluka, Anand District (excluding areas already authorized), Panchmahal District, Amritsar, Navsari, Narmada (Rajpipla) District, Palghar District & Thane Rural, Ahmedabad District (excluding areas already authorized) and Amreli District. Further as per the provision of the regulations, for the GA of Dahej-Vagra Taluka, the sectoral regulator has reduced the PBG by 60% on account of achievement of MWP.

3. SALES AND MARKET PERFORMANCE

Your Company as on date has total 27 CGD licenses and operates in 44 Districts across six States and one Union Territory (UT) and also has one transportation pipeline license.

Your Company has an expanse of around 1,75,700 square kilometers of licensed area under its umbrella and continues to hold the position among the largest CGD Company in Country. Your Company supplies natural gas to more than 22.6 lakh residential consumers, over 15,600 commercial customer and has erected/commissioned 828 CNG stations for vehicular consumers and provides clean energy solutions to over 4,400 industrial units through its wide spread operations with more than 42,600 kilometers of Natural Gas pipeline network.

During the year, your Company has achieved a growth of 12.5%, 5.4% and 4.6% in CNG (T), PNG (Domestic) and PNG (Commercial) sales respectively compared to previous year. Your Company has continued its focused efforts for developing and growing PNG and CNG (T) business. Your Company has connected more than 1,51,000 PNG (Domestic) customers and commercialized 20 new CNG (T) stations during the year.

4. OUTLOOK

The future outlook for natural gas in India depends on the growth in demand, the evolution of the pricing regime and the pace of gas infrastructure expansion. The demand will steadily rise with adoption of natural gas in new emerging Geographical Areas.

Your Company has already adopted digitization of its critical processes and going forward also, your Company shall leverage its endeavors for more digitization and aims to set benchmark in the CGD industry for complete E-Office, benefiting all the stakeholders viz. consumers, vendors, suppliers and employees. Your Company is also exploring newer technologies viz. Hydrogen blending in GGLs existing CGD network, injecting Compressed Bio- Gas (CBG) in CGD distribution network, pilot project on Captive CNG application for residential complex, dedicated satellite LNG station, sourcing electricity generated from renewable sources i.e. Solar/ wind plants for running GGL COCO CNG stations.

Indias Natural Gas supply and demand outlook is changing. The Government of India (GoI) wants to make India a gas-based economy by boosting domestic production. India has set a target to raise the share of gas in its primary energy mix to 15% by 2030 from about current level of 6%. To improve the share of Natural Gas and promote a gas-based and clean fuel economy, the GoI has adopted a systematic approach to focus on all aspects of the gas sector viz upstream, midstream and downstream including CGD network development. Your Company has been continuously growing and expanding its horizon by venturing into new geographic areas and is committed to reach every possible Natural Gas user across its licensed expanse of around 1,75,700 square kilometers through its ever-growing pipeline network spread across 44 Districts in six States and one UT. Your Company shall continue to focus on growing the penetration in the current operating areas by increasing the PNG connections and additional CNG stations while tapping the untapped potential by expeditious rollout of distribution network in its operating Areas. With this focused endeavor, your Company shall continue its efforts in providing clean fuel solutions across all operational area to augment an energetic top-line and bottom-line in coming years.

5. RISKS AND CONCERNS

As per EIA Short-Term Energy Outlook (STEO) May 2025 report, the Brent crude oil spot price averaged $68 per barrel (b) in April. The rising inventories will result in the Brent price averaging $62/b in the second half of this year and falling to $59/b next year. The evolving tariff policy has added uncertainty around expectations for global oil demand growth, concerns about which had persistently weighed on oil prices over the last year. On the supply side, any potential ceasefire in the Russia-Ukraine conflict could add Russian oil volumes back into the market. Lastly, continued supply growth from producers outside of the OPEC+ agreement, primarily in North and South America, adds additional downward pressure to the price forecast in 2026.

Higher forecast summer prices are offset by lower prices during the first half of the year, owing to market concerns over potential macroeconomic weakness and OPEC+ supply additions.

It is forecasted that by the end of this year rising oil supply will mean more oil is being produced globally than is being consumed, leading to inventory accumulation and downward pressure on prices. As a result, it is forecasted that the Brent crude oil price is expected to average at $59/b in 2026.

		2024				2025				2026			Avg for the Year
	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	2024 2025 2026
Brent Spot Average	82.96	84.72	80.03	74.65	75.83	65.04 62.00		61.00 60.00 60.00			59.00	58.00 80.56 65.97 59.00
(dollars per barrel)

INTERNAL CONTROL SYSTEM AND ADEQUACY

The Company has a proper and adequate system of Internal Controls commensurate with its size of operations and nature of business. The Companys Internal Control Systems are further supplemented by extensive programs of audits, i.e. Internal Audit, Proprietary Audit by the Comptroller & Auditor General of India (C&AG) and Statutory Audit by Statutory Auditors appointed by the C&AG. The Internal Control System is designed to ensure that all financial and other records are reliable for preparing financial statements and other data and for maintaining accountability of assets and compliance with statutory requirements. The Company has mapped a number of business processes on to SAP system, thereby leading to significantly improved controls & transparency. Your Company also continues to invest in Information Technology to support various business processes and automating controls.

FINANCIAL AND OPERATIONAL PERFORMANCE

The standalone net profit after tax (Total comprehensive income) for the current financial year 2024-25 increased to 1,154.02 Crores from 1,151.43 Crores in the previous year. The Company had a healthy net cash inflow from operations of 1,805.86 Crores during the Financial Year 2024-25. There is no outstanding loan as on 31st March, 2025.

Investments were made in extension of pipeline network to reach new areas and in reinforcements and upgradation of existing network as required. Investments were also made to connect residential customers and augmenting the CNG infrastructure. Investments were also made to upgrade the IT infrastructure and integrate SAP to enhance reliability and enable scalability. No amount has been transferred to the General Reserve during the year.

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefore, including:

Particulars	FY 2024-2025 FY 2023-2024		Remarks	Reason for significant changes
Debtors Turnover	15.01	14.40	Net Credit Sales / Average Trade	NA
			Receivable
Inventory turnover	694.85	681.82	Cost of goods sold or sales	NA
			/Average Inventory (Natural Gas)
Interest Coverage Ratio	-	-	Earning for Debt Service / Interest for borrowing [Earning for Debt Service = Net Profit after taxes + Non-cash expenses/adjustment + Interest	NA
			-Lease payments]
Current Ratio	2.10	1.64	Current assets / Current liabilities net of customer deposit	Mainly due to increase in deposits with financial institutions in current financial year
Debt Equity	-	-	Total Borrowing / Total Equity	NA
Operating Profit Margin (%)	12.03%	12.03%	Operating income / Revenue from operations	NA
Net Profit Margin (%)	6.67%	7.01%	PAT / Revenue from operations	NA
Return on Net Worth	14.02%	15.36%	PAT / Average Net Worth	NA

Previous years ratios have been reclassified wherever necessary to confirm to the current periods presentation.

HUMAN RELATIONS AND PARTICULARS OF EMPLOYEES

Your Company employed 953 employees as on 31st March, 2025.

Your Company is dedicated to enhancing the capabilities and competencies of its employees. We believe that continuous training and development are essential for creating an environment where individuals can fully leverage their technical skills and innate potential, contributing to the Companys ability to capitalize on emerging business opportunities. Throughout the year, employees participated in various training programs and seminars to expand their knowledge and skill sets. Additionally, they utilized an online training platform to further enhance their knowledge.

The Company is also committed to automating all its policies and processes to improve efficiency. To encourage and reward employee performance, Company has in place a policy of performance linked incentive.

There was no strike or lock-out during the year under review.