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Gujarat Gas
Performance Highlights
Quarterly highlights (Consolidated)
Y/E Dec. (` cr) Net operating income EBITDA EBITDA margin (%) Adj. PAT
Source: Company, Angel Research
NEUTRAL
CMP Target Price
Investment Period
772 83 10.8 53 (2.7) 87.4 999bp 91.1 768 72 9.4 59 (2.2) 115.8 1136bp 70.3
`195 -
2QCY2013 2QCY2012 % chg (yoy) 1QCY2013 % chg (qoq) 751 156 20.8 101
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Oil & Gas 2,498 (429) 1 353/159 9,266 2 18,789 5,566 GGAS.BO GUJS@IN
Gujarat Gas (GGAS) reported a strong set of results for 2QCY2013 on the back of higher realizations coupled with lower costs. However, we maintain our Neutral rating on the stock. Top-line decreases by 2.7% due to lower volumes: The company reported a 2.7% decline in top-line as volumes declined by 17.3% yoy to 239mmscm. Lower volumes were partially offset by higher realizations which grew by 17.9% to `31.2/scm. Lower gas costs boost EBITDA: The cost of gas sold decreased by 14.5% yoy to `542cr which led to the EBITDA increasing by 87.4% yoy to `156cr. The companys other income also increased by 52.3% yoy to `13cr which led to the net profit increasing by 91.1% yoy to `101cr. Outlook and valuation: The companys volumes have declined gradually during the past one year on account of higher price of spot LNG and lower production from the KG D6 block. Going forward, we believe that high price of LNG will continue to impact volume growth of the company. Further, the recent proposal to cap gas marketing margin by PNGRB remains an overhang on the stock. At current levels, the stock is trading at 8.6x and 8.4x CY2013E and CY2014E earnings, respectively. Given the regulatory overhang, we maintain our Neutral rating on the stock.
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 65.1 2.0 15.3 17.7
3m (6.0)
1yr 6.8
(23.1) (36.9)
CY2011
2,419 30.8 273 5.2 16.5 21.3 9.2 3.2 33.4 29.5 0.8 5.0
CY2012
3,096 28.0 286 4.5 13.2 22.3 8.7 2.6 32.6 27.7 0.7 5.1
CY2013E
3,316 7.1 290 1.3 12.8 22.6 8.6 2.3 28.2 25.0 0.6 4.7
CY2014E
3,460 4.3 296 2.1 12.6 23.1 8.4 2.0 25.6 23.3 0.5 4.0
Bhavesh Chauhan
Tel: 022- 3935 7800 Ext: 6821 bhaveshu.chauhan@angelbroking.com
Vinay Rachh
Tel: 022- 39357600 Ext: 6841 Vinay.rachh@angelbroking.com
2QCY2013 751 542 595 156 20.8 13 19 150 19.9 48 32.3 101 101 13.5
% chg (yoy) (2.7) (14.5) (13.6) 87.4 52.3 19.2 97.8 112.3 91.6 91.1
% chg (qoq) (2.2) (15.9) (14.5) 115.8 (51.7) 0.5 88.3 143.2 70.0 70.3
CY2012 3096 2483 2688 408 13.2 67 65 407 13.1 120 29.5 287 1 286 9.2
CY2011 2419 1840 2022 398 16.4 56 60 393 16.3 118 30.1 273 1 274 11.3
% chg (yoy) 28.0 35.0 33.0 2.5 18.8 8.0 3.5 1.5 5.1 (25.8) 4.6
Top-line decreases by 2.7% yoy due to lower volumes: The company reported a 2.7% decline in top-line due to a decline in volumes by 17.3% yoy to 239mmscm. Lower volumes were partially offset by higher realizations which grew by 17.9% to `31.2/scm.
(mmscm)
( ` cr)
150 100 50 0 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13 Gas volumes Avg realization (RHS)
20.0
400 300 200 100 4QCY11 2QCY12 4QCY12 Operating revenues (2.7) 2QCY13
10.0
Lower gas costs boost EBITDA: The cost of gas sold decreased by 14.5% yoy to `542cr which led to the EBITDA increasing by 87.4% yoy to `156cr. The companys other income also increased by 52.3% yoy to `13cr which led to the net profit increasing by 91.1% yoy to `101cr.
(%)
200
( ` /scm
500
( ` /scm)
( ` cr)
10.6
3.9
4.6
6.1
5.7
4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13 Avg. blended margin Avg. gas cost
(` cr)
40 20 -
Investment arguments
Expensive RLNG to mute volume growth: Over the past one year, there has been a decline in gas production from KG-D6. The company is ensuring that the shortfall in volume is partially compensated by higher RLNG procurement which is however, expensive and not feasible for several of GGASs customers. Hence, we expect volume growth to remain muted over the coming two years. Regulatory overhang to persist: After the verdict of the Delhi High Court, the companys marketing margin remains outside the purview of PNGRB. However, PNGRB has indicated that it aims to regulate the marketing margins charged by the utilities. This could potentially impact GGASs tariffs and margins adversely in case there is a cap on marketing margin.
(%)
60
(%)
9.4
Bloomberg Consensus
22.6 23.1
22.3 22.6
(` )
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Nov-08
Nov-09
Nov-10
Nov-11
May-08
May-09
May-10
May-11
May-12
Nov-12
Feb-13
May-13
Aug-08
Aug-09
Aug-10
Aug-11
Aug-12
7x
Source: Company, Angel Research
10x
13x
16x
19x
Aug-13
IGL
51 68 Buy 2,886 33 5.1 GSPL *For IGL, PLNG and GSPL: CY13E=FY14E and CY14E=FY15E
Company background
GGAS is one of the largest private sector players in natural gas transmission and distribution business in Gujarat. GGAS became a subsidiary of the BG Group in 1997 as the latter acquired more than 60% shares from Mafatlal group and others and later increased its stake to 65%. During the last five years, the company has expanded in southern Gujarat and has exclusive distribution rights in the industrialized cities of Surat, Ankleshwar and Bharuch. Currently, it supplies gas to more than 349,000 domestic, commercial and industrial customers. The companys pipeline network is spread over 3,700km. During October 2012, Gujarat State Petroleum Corporation announced to acquire the entire 65% BG Groups stake in GGas.
Key ratios
Y/E December Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA (0.6) (1.5) (0.7) (1.3) 782.3 (0.7) (1.3) 226.1 (0.4) (1.0) 216.8 (0.4) (1.1) 347.9 (0.6) (1.7) 354.9 1.7 5 27 62 (34) 1.9 3 25 52 (40) 2.3 2 23 30 (32) 2.6 2 21 15 (13) 2.5 3 23 17 (1) 2.4 2 26 34 (0) 24.4 29.0 23.6 33.8 39.2 32.0 29.5 33.8 33.4 27.7 31.4 32.6 25.0 29.0 28.2 23.3 57.9 25.6 16.4 67.7 1.5 16.8 16.8 19.5 67.6 1.7 23.1 23.1 13.9 69.8 2.1 20.8 20.8 11.1 70.3 2.6 19.9 19.9 10.5 70.0 2.5 18.4 18.4 10.3 70.0 5.1 36.6 36.6 13.6 13.6 17.3 8.0 59.7 20.1 20.1 24.3 12.0 65.9 21.2 21.3 25.9 10.0 61.5 22.3 22.3 27.4 10.0 75.3 22.6 22.6 28.5 11.0 85.0 23.1 23.1 29.4 11.0 95.2 14.3 11.3 3.3 4.1 1.5 7.4 2.1 9.7 8.0 3.0 6.2 1.0 4.7 1.7 9.2 7.5 3.2 5.1 0.8 5.0 1.7 8.7 7.1 2.6 5.1 0.7 5.1 1.6 8.6 6.8 2.3 5.6 0.6 4.7 1.4 8.4 6.6 2.0 5.6 0.5 4.0 1.1 CY09 CY10 CY11 CY12 CY13E CY14E
E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Gujarat Gas No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns):
10