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

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

(GUJGA IN, Mkt Cap USD4b, CMP INR464, TP INR586, 26% Upside, Buy)

• Lower-than-estimated volumes resulted in lower-than-estimated spot/short-term cargoes, thereby reducing gas cost. As a result, GUJGA reported a beat on our EBITDA estimate, with higher EBITDA/scm (at INR6.8). Volumes stood at 9.8mmscmd (Morbi: ~4.7mmscmd) in 1QFY23
• It is currently clocking volumes of ~9mmscmd. Of this, Morbi stands at 4.3mmscmd. LPG consumption at Morbi stands ~2mmscmd. Volumes are expected to decline further in Aug’22, led by plant shutdowns, amid higher inventory and weak demand.
• Spot LNG prices rose to USD42.2/mmBtu in Jul’22 v/s USD28/mmBtu in 1QFY23. However, GUJGA has contracted short-term cargoes for most of its requirements for the remainder of FY23, thereby shielding it against currently high spot LNG prices.
• Due to weak demand from Ceramic players, we lower our FY23/ FY24 volume assumption to 10mmscmd/12mmscmd and our EBITDA estimate by -8/-10%.
• GUJGA’s volume growth prospects remain robust with the addition of new industrial units, expansion in existing units, and the emergence of a new Ceramic cluster at Aniyari (with a potential of ~0.5mmscmd). The Supreme Court order, which was in favor of the company for Ahmedabad rural, offers prospects of 0.8-1.2mmscmd over the next two-to-three years.
• We maintain our Buy rating on the stock and arrive at our TP of INR586 (at 26x FY24E EPS). Any underperformance in terms of EBITDA/scm or volume growth v/s our projection can pose a key risk for GUJGA.

 

Beat led by higher EBITDA/scm (at INR6.8)

• EBITDA/PAT fell 16%/20% YoY to INR6b/INR3.8b, 16%/19% ahead of our estimate.
• Volumes stood at 9.8mmscmd, 7% below our estimate.
• The company is currently flowing volumes of ~9mmscmd.
• While volumes at Morbi stood at 4.7mmscmd in 1QFY23, it is currently at 4.3mmscmd. Volumes are expected to remain muted due to higher inventory and weak demand from Ceramic players.
• CNG volumes were in line at 2.4mmscmd (up 57% YoY and 9% QoQ) – its highest ever. PNG I/C volumes fell 14% YoY (flat QoQ) to 6.8mmscmd (8% below our estimate). PNG domestic volumes stood at 0.6mmscmd.
• EBITDA/scm stood at INR6.8 (est. INR5.5) in 1QFY23. Gross margin stood at INR9.8/scm, down from INR10.7/scm in 4QFY22.