MOSL: GUJARAT GAS (Sell)-EBITDA above estimate led by lower gas cost-volume growth strong

​Gujarat Gas: EBITDA above estimate led by lower gas cost; volume growth strong

(GUJGA IN, Mkt Cap USD1.6b, CMP INR749, TP INR691, 8% Downside, Sell)

• GUJGA reported EBITDA of INR2.7b (+24% YoY, +84% QoQ), ahead of our estimate of INR1.8b, led by lower RM cost of INR10.6b (-5% QoQ). Reported PAT came in at INR1b (+39% YoY, +215% QoQ), significantly ahead of our estimate of INR579m.
• EBITDA/scm stood at INR4.8: EBITDA/scm rose sharply to INR4.8 (+3% YoY, +81% QoQ), ahead of our estimate of INR3.3, led by lower gas cost. We have modeled EBITDA/scm at INR5/5.1 for FY18/19.
• PNG volumes strong: PNG industrial/commercial volumes stood at 4.4mmscmd (+25% YoY, +3% QoQ), and PNG household volumes at 0.4mmscmd (+14% YoY, -21% QoQ). We have modeled total PNG volumes at 5/5.6mmscmd for FY18/19
• CNG volumes up 11% YoY: CNG volumes stood at 1.3mmscmd (+11% YoY, +2% QoQ). We model CNG volumes at 1.4/1.6mmscmd for FY18/19.

Valuation and view

• We expect volume growth to continue in FY18/19, primarily led by PNG industrial and commercial segment. For FY18/19, we model volumes of 6.4/7.2mmscmd and EBITDA/scm of INR5/5.1.
• We understand that due to gas not being in GST, sales volume has been impacted adversely. However, we also understand that state government is mulling decreasing VAT which may result in the volumes being restored.