MOSL: GUJARAT GAS (Sell)- Roller coaster continues-both volume and EBITDA/scm poor

​Gujarat Gas:Roller coaster continues; both volume and EBITDA/scm poor

(GUJGA IN, Mkt Cap USD2.0b, CMP INR956, TP INR721, 25% Downside, Sell)

• GUJGA reported EBITDA of INR2.0b (-3% YoY, -25% QoQ), below our estimate of INR2.3b, led by a lower-than-expected margin. PAT came in at INR611m (-12% YoY, -41% QoQ), significantly below our estimate, led by higher-than-expected interest cost and lower-than-expected other income.
  
• PNG volumes strong: PNG industrial/commercial volumes stood at 4.0mmscmd (+13% YoY, -9% QoQ), and PNG household volumes at 0.5mmscmd (+5% YoY, +4% QoQ). Sequential decline in volumes was led by non-inclusion of gas under GST, state bringing in a cut in VAT with a delay, and flooding-related shutdowns by consumers. According to management, the volumes lost have been made up for at the exit of the quarter.
  
• CNG volumes up 7% YoY: CNG volumes stood at 1.3mmscmd (+7% YoY, -1% QoQ). Unless CNG volumes become a larger contributor, the company would continue witnessing volatility in volumes and margins, in our view.
  
• EBITDA/scm stood at INR3.8: EBITDA/scm rose declined to INR3.8 (-13% YoY, -21% QoQ), below our estimate of INR4.4, led by higher gas cost. We have modeled EBITDA/scm at INR4.5/5.0 for FY18/19E.