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Gujarat Gas
Performance Highlights
Y/E Dec. (` cr) Net operating income EBITDA EBITDA margin (%) Adj. PAT
Source: Company, Angel Research
NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Oil & Gas 5,683 0.7 487/298 18134 2 16,840 5,073 GGAS.BO GUJS@IN
419 93 22.3 58 39.8 50.2 167bp 66.7 529 109 20.6 72 10.6 29.0 343bp 33.1
`443 -
2QCY11 2QCY10 % chg (yoy) 1QCY11 % chg (qoq) 585 140 24.0 96
Gujarat Gas (GGAS) 2QCY2011 net operating income, EBITDA and adjusted PAT grew by 39.8%, 50.2% and 66.7% yoy, respectively, on the back of higher realisation. We have a Neutral view on the stock. Higher realisation drives 2QCY2011 profits: During 2QCY2011, GGAS top line increased by 39.8% yoy to `585cr mainly on account of higher realisation, led by the recent price hikes. Natural gas volumes sold during the quarter grew by 1.8% yoy to 302mmscm. Average sales realisation stood at `19.1/scm (+35.6% yoy and +11.2% qoq), led by hike in selling prices of the industrial retail and CNG segments. EBITDA grew by 50.2% yoy to `140cr, while EBITDA margin expanded by 167bp yoy to 24.0% on the back of the recent price hike across segments. Net profit grew by 66.7% yoy to `96cr. Outlook and valuation: GGAS still awaits authorisation from PNGRB for its areas of operations. However, to pursue growth, the company has bid for a new area within Gujarat under the third round of bidding conducted by PNGRB. Besides volume growth, to maintain margins, the company plans to price its gas as per the pricing of alternative fuels. We believe, through this strategy, the company will be able to maintain volume growth and margins going ahead. At current levels, the stock is trading at 19.0x and 17.1x CY2011E and CY2012E earnings, respectively. We believe the stock is fairly valued at current levels; hence, we have a Neutral view on the stock. Key financials (Consolidated)
Y/E Dec. (` cr) Net sales % chg Net profit % chg OPM (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 65.1 7.5 15.9 11.4
3m (8.2) 24.0
CY2009 1,420 9.1 174.2 8.4 19.7 13.6 32.6 7.4 23.6 24.4 3.7 18.8
CY2010 1,849 30.3 257.7 48.0 22.5 20.1 22.0 6.7 32.0 33.8 2.8 12.3
CY2011E 2,472 33.7 299.7 16.3 19.1 23.4 19.0 5.7 32.6 34.0 2.1 10.8
CY2012E 2,734 10.6 332.2 10.8 19.0 25.9 17.1 4.8 30.7 32.9 1.8 9.6
Bhavesh Chauhan
Tel: 022- 3935 7800 Ext: 6821 bhaveshu.chauhan@angelbroking.com
2QCY11 585 399 445 140 24.0 14 15 139 23.8 43 30.9 96 96 16.4
% chg (yoy) 39.8 37.6 36.8 50.2 149.5 11.2 63.2 57.1 66.1 (25.9) 66.7
% chg (qoq) 10.6 5.2 999.0 29.0 41.0 2.6 33.6 34.5 33.2 47.7 33.1
CY10 1849 1286 147 416 22.5 22 54 383 20.7 124 32.4 259 1 258 13.9
CY09 1420 1003 137 280 19.7 27 47 259 18.2 84 32.3 175 1 174 12.3
% chg (yoy) 30.3 28.2 7.5 48.7 (15.9) 14.4 48.2 48.7 48.0 48.4 48.0
Top line up 39.8% yoy, driven by higher realisation: The companys top line increased
by 39.8% yoy to `585cr mainly on account of higher realisation, led by the recent price hikes. Natural gas volume sold grew by 1.8% yoy to 302mmscm. Average sales realisation stood at `19.1/scm, (+35.6% yoy and +11.2% qoq), led by hike in selling prices of the industrial retail and CNG segments.
(mmscmd)
(`/scm
13.8
13.8
10.0
1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 Gas volumes Avg realisation (RHS)
(%)
15.8
(` cr)
3.30
16.3
400
OPM expands by 167bp yoy on account of increased prices: EBITDA grew by 50.2%
yoy to `140cr, while EBIDTA margin expanded by 167bp yoy to 24.0% on the back of the recent price hike across segments. Other income grew by 149.5% yoy to `14cr. Consequently, the companys net profit grew by 66.7% yoy to `96cr.
(`/scm)
(` cr)
60 40 20 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 Operating Profit Operating Margins (RHS) 17.8
(` cr)
(%)
50.0
(%)
80
21.0
Investment arguments
Supply-side woes receding on improving domestic gas availability and LNG playing a crucial role: Over the past one year, the company has registered steady growth in volumes, following improving availability of gas in the country and subdued RLNG prices. Although there have been some delays in receiving gas from KG-D6 on account of slow ramp-up of gas production, the company is ensuring that the shortfall in volume is compensated by higher RLNG procurement. The company recently re-entered into a firm RLNG agreement with BG for total supply of 1.2mmscmd. The company continues to explore such long-term RLNG contracts. Moreover, increased availability of domestic gas (RIL, along with BP, ramping up production from KG-D6 beyond 50mmscmd) would improve matters further. Gross spread to stabilise: Gross spread has edged higher over the last couple of years as the company provided large proportion of its incremental gas to high-margin industrial retail customers. Thus, the company's profitability has been improving with its focus shifting to the high-margin retail business from bulk customers. Going ahead, we expect gross gas spread to stabilise at the current level as the company is able to pass through its gas cost to customers by proactively pricing it, taking into account the pricing of alternative fuels.
23.4 25.9
Aug-08
Dec-10
Apr-06
Mar-09
Nov-06
Oct-09
7x
Source: Company, Angel Research
10x
13x
16x
Source: Angel Research; Note: For GGAS* FY12E = CY11E and FY13E = CY12E
May-10
Jun-07
Jan-08
19x
Jul-11
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) Working capital cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT/Interest) (0.4) (1.0) (0.5) (1.6) (0.6) (1.5) (0.7) (1.3) (0.6) (1.2) 456.3 (0.6) (1.4) 452.0 1.9 4.6 25.1 66.0 (23.9) 1.8 5.0 25.7 63.1 (23.5) 1.7 5.0 27.0 61.7 1.9 3.9 25.2 48.4 2.3 4.2 26.4 49.1 (29.8) 2.3 5.3 30.0 61.1 (25.4) 31.7 39.0 30.2 23.4 28.3 25.1 24.4 29.0 23.6 33.8 39.0 32.0 34.0 39.3 32.6 32.9 41.0 30.7 17.1 67.1 1.9 21.8 21.8 14.9 69.3 1.6 16.6 16.6 16.4 67.7 1.5 16.8 16.8 19.5 67.6 1.7 23.1 23.1 16.6 69.3 2.1 23.9 23.9 16.5 69.3 2.1 24.5 24.5 11.9 11.9 14.9 1.5 44.5 12.5 12.5 15.8 1.5 55.3 13.6 13.6 17.3 8.0 59.7 20.1 20.1 24.3 12.0 65.9 23.4 23.4 28.2 10.0 77.4 25.9 25.9 31.1 10.0 91.5 37.1 29.7 9.9 0.3 2.1 10.3 3.5 35.4 28.1 8.0 0.3 1.9 10.5 2.7 32.6 25.6 7.4 1.8 3.7 18.8 5.3 22.0 18.2 6.7 2.7 2.8 12.3 4.5 19.0 15.7 5.7 2.3 2.1 10.8 4.0 17.1 14.2 4.8 2.3 1.8 9.6 3.4 CY07 CY08 CY09 CY10 CY11E CY12E
(34.0) (39.0)
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