Fidelity, Aberdeen Drawn to Gas Retailers as India Cleans Up

Fidelity Investments and Morgan Stanley Investment Management have increased exposure to Indian city-gas retailers, as Prime Minister Narendra Modi’s emphasis on clean fuels burnishes the outlook for the industry.

The demand from investors has been so strong that Indraprastha Gas Ltd., which supplies to homes and vehicles in New Delhi, raised the cap on foreign ownership to 30 percent from 24 percent, and may increase it again to almost half, Managing Director E.S. Ranganathan said. India’s largest city gas distributor Gujarat Gas Ltd., where Aberdeen Asset Management Plc. is the biggest non-state investor, and Mahanagar Gas Ltd. have also seen an increase in offshore holdings.

“Foreign investors who were investing in China are now looking more on India,” Ranganathan said. “Everyone has an India fund or an Asia fund or South Asia fund and these funds are investing in Indian city gas networks. When our market cap went above $2 billion, lots of funds started looking at us.”

India’s gas demand is about a fifth of China’s due to weak domestic supply and poor infrastructure, though the government is trying to change this, according to Bloomberg Intelligence. Oil Minister Dharmendra Pradhan said last year the nation will lay 15,000 kilometers (9,320 miles) of gas pipelines over five years. Modi, who championed natural gas as the chief minister of Gujarat state, has stepped up measures to improve air quality in cities by giving priority to distributors such as Indraprastha Gas for accessing cheaper local gas.

Offshore holdings in Indraprastha Gas climbed to nearly 25 percent as of March 31, from about 21 percent a year ago, according to data available with the exchanges and compiled by Bloomberg. Fidelity acquired 579,367 shares, while Morgan Stanley Investment added 292,598, according to the most-recent exchange filings. Both fund managers didn’t respond to emailed requests for comment.

Aberdeen Asset Management held about 4.6 percent of outstanding shares in Gujarat Gas as of end-April. Foreign holdings in the company have climbed about 3 percentage points to 15.4 percent in the past year.

“We have been long-term investors because it is a well-run company with focused management that seek to strengthen and expand a good collection of distribution assets,” Singapore-based Adrian Lim, an investment manager at Aberdeen Asset Management Asia, said in an email. “It serves to distribute energy through their ever-expanding energy infrastructure network in a state that attracts a lot of both domestic and international investors.”

Mahanagar Gas — which sells the fuel in the financial capital Mumbai and its suburbs — has seen stock in the hands of foreign investors increase nearly six times since listing last year.

Rapid Growth

India’s government wants more urban households to use natural gas and free up liquefied petroleum gas for rural users. The eventual aim is to cut down on the use of polluting fuels such as wood and dried cow dung, which cause 1.3 million premature deaths in India every year, according to World Health Organization estimates.

“This is a very fast-growing sector,” Sabri Hazarika, an analyst at Mumbai-based PhillipCapital (India) Pvt. said over the phone. “The government is interested in increasing the share of natural gas in the primary energy consumption basket from 6.5 percent to 15 percent.”

The city gas distribution companies have shown solid growth, are debt-free and have got high return ratios, he said.
Shares of Indraprastha Gas, which have surged almost 80 percent in the past year, fell 0.4 percent to 1,022 rupees at 11:26 a.m. India time. Mahanagar Gas shares, which have more than doubled since their listing in June, added 2.1 percent to 976.95 rupees. The benchmark S&P BSE Sensex rose 0.1 percent.

“City gas companies offer a steady revenue stream and decent returns over the long-term,” said Rajeev Kumar Mathur, managing director at Mahanagar Gas. “That might be attractive for foreign investors.”

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