Titas Gas share price battered by cuts in distribution charges

Titas Gas Transmission and Distribution Company lost more than Tk 3,000 crore in market value over the last five months after a recent change in distribution charges.

On August 30 last year, the market value, or market capitalisation, of Titas Gas stood at Tk 7,518 crore. It came down to Tk 4,411 crore on February 3 this year, according to data from Dhaka Stock Exchange.

Similarly, the share price of Titas Gas, which never fell below Tk 60 in the last two years, came down to Tk 42 last week. The current market price is far below the net asset value of Tk 58.75 per share, meaning the company's share is underpriced.

The distribution charges were reset following the new tariff structure for gas consumption set by Bangladesh Energy Regulatory Commission (BERC) in August last year. The new margin became effective from September last year.

Although a major price sensitive information, it was not disclosed at the time. The information was revealed one and a half months later, on November 11, when it published the first quarterly earnings.

Due to the re-fixing of distribution margin, its net profit dropped 33.72 percent year-on-year. Earnings per share (EPS) also came down to Tk 1.57 from Tk 2.37, Titas Gas said in a posting on the DSE website.

A day later, in another posting on the DSE website, Titas Gas said the management has decided to appeal against the order of the BERC to re-fix the distribution margin.

The distribution charge for per cubic metre of gas in the commercial category has been slashed 85.88 percent, in industrial and tea garden category 74.35 percent, captive power 73.77 percent, domestic 66.21 percent and CNG 0.64 percent.

The charges in the power and fertiliser categories, however, were raised 17.78 percent and 70.97 percent respectively.

But some stockbrokers, who were present during the public hearings of the BERC on the issue, speculated that the decision would cast a negative impact on the earnings of Titas Gas, and reacted smartly, according to market insiders.

The stockbrokers, especially those who provide brokerage services to overseas investors, sold off a bulk amount of shares from the foreigners' portfolio, the insiders said.

The huge sell-off pressure pulled down the stock price of Titas Gas from Tk 76 in August to below Tk 50 in November.

Due to the revision of the distribution fees, net profit of Titas Gas declined 55.5 percent year-on-year to Tk 187.06 crore during the first half of the fiscal year, although its revenue increased 38.55 percent year-on-year to Tk 5,179 crore during the period.

But if the system loss is taken into consideration, the impact would be much higher, according to a securities analysis firm.

Around two-thirds of Titas Gas's total earnings used to come from its distribution business, said IDLC Securities, a stockbroker.

Moreover, it said, Titas had transmission business on a limited scale. During the last revision of the transmission margin, it was also revised down by 48.9 percent.

“On top of that, Titas used to have a large income from its fixed deposits and cash positions. The recent decline in the interest rate has further eroded the company's earnings,” it added.

The sudden fall in prices attracted the attention of many and also prompted the regulator to go for an inquiry.

Bangladesh Securities and Exchange Commission in November last year formed a two-member panel to investigate the unusual price decline of Titas Gas.

The panel, which consists of two officials of the Dhaka bourse, has already submitted its report to the stockmarket regulator.

“The issue is now under the enforcement department, which is taking the next course of action. After the legal processes, the commission will take the final decision on the issue,” said Saifur Rahman, spokesperson and an executive director of the BSEC.

The Titas Gas issue has also left a negative impact on four listed state companies -- Padma Oil, Desco, Jamuna Oil and Meghna Petroleum.

The four companies have lost around Tk 2,800 crore in market capitalisation since August 30 last year due to a fall in their share prices.

Last week, the DSE Brokers Association of Bangladesh urged the government to revise the net profit distribution margin, as it has affected share prices and dividend declarations.

Titas Gas has recommended only 15 percent cash dividends for fiscal 2014-15, the lowest since its listing on the stock exchanges in 2008.

Its EPS for July-September this fiscal year came down to Tk 1.57, from Tk 2.37 a year earlier.

Investors always consider the listed state-owned companies, including Titas Gas, as fundamentally strong companies, said Ahsanul Islam, president of the association, at a press briefing last Thursday.

But if the government reduces the profit margin, the companies also lose their ability to provide healthy dividends, frustrating the general investors, he said.

The government owns a 75 percent stake in Titas Gas, institutional investors 16 percent and the public 9 percent.