Motilal Oswal - Gujarat Gas (GUJRATGAS) MOSL: GUJARAT GAS (Buy)-Ecstatic margins; unlikely to sustain

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Motilal Oswal

Swarnendu Bhushan

EUR 120.00 For Business Accounts Only

MOSL: GUJARAT GAS (Buy)-Ecstatic margins; unlikely to sustain

GUJARAT GAS: Ecstatic margins; unlikely to sustain

(GUJGA IN, Mkt Cap USD7.2b, CMP INR772, TP INR860, 11% Upside, Buy)

Gujarat Gas (GUJGA) reported a beat on our numbers, driven by better-than-estimated EBITDA/scm (INR7.9), while volumes were in-line (at 10mmscmd, with Morbi at 5.6mmscmd). The gross margin stood at INR10.4/scm (v/s our estimate of INR7.8), led by lower gas costs. In 1QFY22, GUJGA began procuring 1.33mmscmd of gas from the Barmer field in Rajasthan (in addition to 0.67mmscmd gas from the KG Basin in the previous quarter). Thus, long-term gas sourcing for the company stands at 6mmscmd (v/s 4.2mmscmd earlier).
However, owing to the current spike in Brent and spot LNG prices (JKM forward curve at USD15–16/mmbtu v/s USD10 in 1QFY22), the gross margin for 2QFY22 would face downward pressure – if no price hike is taken by the company. GUJGA has been agile in its pricing strategy in line with alternative fuel prices; although, conservatively, we estimate EBITDA/scm of INR4 for 2QFY22.
The streak of quarterly EPS revisions continues, with 1QFY22 being the sixth consecutive quarter of EPS upgrades. Volumes recovery post the last two lockdowns has been the quickest for GUJGA (current volumes at 12mmscmd, with Morbi at 7.1mmscmd), and we continue to reiterate our optimism on the company’s volume growth (triggers highlighted below).

06/08/2021 8 EN

Underlying

Gujarat Gas

Gujarat Gas Ltd. 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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INE844O01030 National Stock Exchange of India India

Provider

Motilal Oswal

Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.

Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.

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Analysts

Swarnendu Bhushan

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MOSL: GUJARAT GAS (Buy)-Ecstatic margins; unlikely to sustain

MOSL: GUJARAT GAS: Margin surprises; volumes dip, likely to remain muted ahead

With a more favourable environment, GUJARAT GAS improves to Positive

MOSL : HOME FIRST FINANCE COMPANY: Earnings in-line with sustained improvement in asset quality

MOSL : SHOPPERS STOP: Ticking the right boxes

MOSL : ERIS LIFESCIENCES: Enhanced efforts toward product launch-related activities

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