Gujarat Gas' Q3FY19 results (Outperformer) - Strongest quarter in 3 years!
Q3FY19 result highlights
- Gujarat Gas (GGL) reported highest ever adjusted PAT of Rs1.5bn, well above IDFCe of Rs1.3bn (+10%) and consensus estimates, growing +2.5x yoy led by beat on margins. 9MFY19 PAT of Rs3bn +33% yoy
- Volumes of 6.55 mmscmd, +4% yoy, in line. Volume growth was driven by CNG (1.42 mmscmd, +10% yoy, est 1.37mmscmd), Dom PNG volumes of 0.54 mmscmd (+5% yoy, in line) while Ind/Comm volumes of 4.6 mmscmd grew 2% yoy, below est 4.7 mmscmd. 9MFY19 volumes of 6.6 mmscmd grew +8.3% yoy.
- Aggressive price hikes taken in Oct’18 resulted in higher blended realization of Rs35.1/scm (+29% yoy) ahead of IDFCe Rs34.1/scm, while effective gas costs at $10/mmbtu was marginally higher than est $9.8/mmbtu. Resultant, highest ever Gross margins and EBITDA/scm of Rs8.1/scm and Rs5.3/scm respectively (IDFCe Gross spreads/EBITDA per scm of Rs7.6/Rs4.8 per scm). 9MFY19 Gross spreads/EBITDA per scm of Rs6.9/Rs4.2 per scm, +3% yoy.
- Blended gas costs of Rs27/scm (US$10/mmbtu) were marginally higher than IDFCe Rs26.5/cm (US$9.8/mmbtu).
Key positives: Highest ever margins and improvement in CNG volumes
Key negatives: Ind/Comm volume growth muted
Impact on financials: We raise FY19/20/21E EPS by 2.1%/6.0%/3.5% to factor higher margins. TP revised to Rs180/sh.
Valuations & View
In our view, GGL’s growth remains strong, with the company already seeing traction from 11-12 additional districts being developed over last 2 years, GGL is also close to finalising the buyout of GAIL’s 50% stake in Vadodara Gas, subject to regulatory clearances, while our sense is that the Amritsar/Bhatinda licenses might be transferred to GGL from group company GSPC Gas. Overall, the company is on track to double volumes by FY23E to ~12 mmscmd from 6.4 in FY18. 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 8/2/5% in volumes/gross margins & EBITDA/scm over FY19-21E. Current valuations of 13.3x FY21E EPS and 6.8x EV/E remain attractive, with our revised TP implying 45% 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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