Gujarat Gas' Q1FY19 results (Outperformer) - Strong yoy volumes. Margins back to growth
Q1FY19 result highlights
- Gujarat Gas (GGL) adjusted PAT of Rs896mn, down 14% yoy (IDFCe 835bn, consensus est 785mn). Strong margin improvement qoq (higher than est) drove the beat vs IDFCe. Volumes of 6.44mmscmd grew 5% yoy (IDFCe 6.5mmscmd)
- The volume strength driven by demand from CNG segment (+11% yoy) and steady growth in Industrial demand (+4% yoy). The industrial/comm volumes lower qoq due to stock builds at Morbi in Q4FY18.
- Blended gas costs of Rs23/scm (US$9.2/mmbtu) were higher than IDFCe Rs21.9/cm (US$8.9/mmbtu), but this was offset by stronger realisations of Rs30.1/scm (IDFCe Rs28.5) which led to gross margins of Rs7.1/scm (highest in 4 qtrs) and EBITD/scm of Rs4.2, well ahead of estimates of Rs6.6/4 respectively.
- Reported PAT of Rs1.2bn, up 16% yoy, helped by Rs489mn tax refund this quarter.
Key positives: Record volumes, sharp improvement in return ratios
Key negatives: Higher than expected gas costs, dragging margins
Impact on financials: We raise FY19/20E EPS by 4/3% to factor higher margins. TP revised to Rs1050/sh.
Valuations & View
With volume traction visible and the development of newer areas (5 new districts Kutch, Botad and Silvassa Dahej and Thane commissioning in last 6-9mths) we see a strong volume growth trajectory over FY18-20E. With the seasonal impact on LNG prices winding down and the price hike of Rs2.5/scm taken in industrial segment in Dec, margins should recover over FY19. With the steadily building strength being seen in volumes and the higher margins, we see earnings visibility improving materially for GGL. Our estimates imply a CAGR of 9/5/10% in volumes/gross margins & EBITDA/scm over FY18-20E. Additionally, the newer area volumes are expected to add an estimated 3 mmscmd of volumes to existing business by FY22E, taking total volumes to ~11.3 mmscmd. Current valuations of 15x FY19E EPS and 7.4x EV/E (adjusting for the NPV of new areas) remain attractive, with our revised TP implying 34.6% upside from here. Reiterate Outperformer.
Gujarat Gas Ltd Formerly known as Gujarat Gas Company Limited. Gujarat Gas Company Limited is an India-based company. The Company is engaged in Natural Gas Business in Gujarat. Natural gas business involves distribution of gas from sources of supply to centers of demand and to the end customers. The Company has underground pipe lines consists of mild steel (ME) and polyethylene (PE). These lines gas is supplied to Residential, Industrial, Commercial and Compressed Natural Gas (CNG). The Company also supplies piped natural gas to customers and retails compressed natural gas. Gas is used by customers for applications, such as heating, cooling, power and process. The Company has two subsidiaries namely Gujarat Gas Financial Services Limited and Gujaratgas Trading Company Limited.
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