Gujarat Gas' Q4FY18 results (Outperformer) - Record volumes for the qtr, FY18 delivers strong growth
Q4FY18 result highlights
- Gujarat Gas (GGL) adjusted PAT of Rs660mn, up 99% yoy (IDFCe 1bn, consensus est 700mn). FY18 PAT of Rs2.9bn grew 31% yoy, on top of 21% yoy growth in FY17 as well.
- The volume strength driven by continued revival of demand from industrial/comm segment (+12% yoy) and steady growth in domestic/CNG demand (+10% yoy). The industrial/comm volumes of 4.7 mmscmd is the highest volume from this segment since Q1FY16.
- Blended gas costs of Rs22.3/scm (US$9.3/mmbtu) were however higher than IDFCe Rs21.3/cm (US$8.9/mmbtu), driving the miss on margins and hence profitability. EBITDA of Rs2.2bn (+52% yoy, IDFCe Rs2.6bn). FY18 EBITDA of Rs9bn, up 20% yoy.
- FY18 RoE/ROCE of 17/16% has improved 490/475 bps yoy.
Key positives: Record volumes, sharp improvement in return ratios
Key negatives: Higher than expected gas costs, dragging margins
Impact on financials: We reduce FY19/20E EPS by 5/2% to factor lower margins, offset by higher volumes. TP revised to Rs1045/sh.
Valuations & View
Despite the disappointment vs estimates we remain positive on long term prospects of GGL over FY18-20E. 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 revised estimates imply a CAGR of 10/4/8% 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 ~11.5 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 ~26% 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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