EUR 4.27 For Business Accounts Only

Sui Northern Gas Pipelines (SNGP): 1QFY19 EPS Rs4.1, up 35% YoY (-50% QoQ); (Above Expectations)

• Sui Northern Gas Pipelines Limited (SNGP) announced its financial results for 4QFY18 and 1QFY19, wherein the company reported profitability growth of 105% (EPS: Rs8.1) and 35% YoY (EPS: Rs4.1) respectively.
• Higher profits during 4QFY18 were triggered by retrospective adjustment of UFG losses, contributing Rs1.2/share to bottom line of the company, we estimate. To recall, Sui Companies were allowed to retrospectively adjust their UFG benchmark to 7.1% for FY13-17 against actual allowed UFG of 6.73%, 6.91%, 7.08%, 7.14%, and 7.11% during said years. Further, higher capitalization of fixed assets during 4Q was also a key reason behind improved profits.
• During 1QFY19, earnings of the company were higher due to increase in asset base (as evident from 4QFY18 results). However, QoQ it was down 50% YoY due to absence of one off income and higher UFG of 11.57% (as per our channel checks). Currently, running UFG of SNGP is close to 10%.
• Finance cost of the company drastically increased during both 4QFY18 and 1QFY19 by 297% and 152% respectively due to increase in the company’s debt borrowings and higher interests rates (+475bps since Jan 2018) in economy.
• The company’s financial results also accompanied cash dividend of Rs5.5 for 4QFY18 and Rs1.5 for 1QFY19.
• Key risks for the company includes 1) higher UFG losses, 2) delay in capex, & 3) regulatory changes, posts key risks for the company.