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November 5, 2012
Gujarat Gas
Performance Highlights
Quarterly highlights (Consolidated) Y/E Dec. (` cr) 3QCY2012 3QCY2011 % chg (yoy) 2QCY2012 % chg (qoq) Net operating income EBITDA EBITDA margin (%) Adj. PAT
Source: Company, Angel Research
NEUTRAL
CMP Target Price
Investment Period
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 3,831 242 1 438/270 35775.94 2 18762.87 5704.2 GGAS.BO GUJS@IN
`299 -
772 83 10.8 53
Gujarat Gas (GGAS) reported a strong growth in net profit on account of higher realizations. However, given the regulatory overhang on the stock, we recommend a Neutral rating on the stock. Top-line growth of 28.0% yoy driven by higher realization: The companys top-line increased by 28.0% yoy to `836cr mainly on account of higher realization (partially offset by lower volumes). The average sales realization grew by 42.6% yoy to `28.1/scm, led by hike in selling prices in both, industrial retail and CNG segments. However, natural gas volume sold fell by 9.5% yoy to 295mmscm during the quarter. Higher other income boosts bottom-line growth: The cost of goods sold increased by 42.6% yoy to `699cr on account of higher proportion of expensive RLNG sales (47% of total volumes). Hence, the EBITDA grew by only 16.2% yoy to `137cr, despite sales growth of 28.0% yoy. Other income increased by 87.8% yoy to `19cr. Consequently, the companys net profit increased by 24.8% yoy to `100cr. Outlook and valuation: The companys volumes have declined gradually during the past one year on account of higher price of spot LNG. Going forward, we believe that high price of LNG will continue to impact the volume growth of the company. Further, the recent proposal to cap gas marketing margin by the Petroleum and Natural Gas Regulatory Board (PNGRB) remains an overhang on the stock. At current levels, the stock is trading at 13.1x and 12.7x CY2012E and CY2013E 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 6.2 17.4 11.2
3m 9.1
1yr 6.8
(2.5) (31.9)
CY2010 1,849 30.3 258 48.0 22.5 20.1 14.9 4.5 32.0 33.8 1.8 7.9
CY2011 2,472 33.7 272 5.7 16.1 21.2 14.1 4.9 33.3 29.5 1.4 8.4
CY2012E 3,167 28.1 292 7.3 13.2 22.8 13.1 3.9 33.2 29.3 1.0 7.8
CY2013E 3,752 18.5 302 3.3 11.7 23.5 12.7 3.5 29.2 27.1 0.8 7.2
Bhavesh Chauhan
Tel: 022- 3935 7800 Ext: 6821 bhaveshu.chauhan@angelbroking.com
Vinay Rachh
Tel: 022- 39357600 Ext: 6841 Vinay.rachh@angelbroking.com
3QCY2012 836 699 699 137 16.4 19 16 0 140 16.7 40 28.7 100 0 100 11.9
3QCY2011 653 490 535 118 18.0 10 15 0 113 17.2 33 28.9 80 0 80 12.2
% chg (yoy) 28.0 42.6 30.6 16.2 87.8 5.6 11.1 24.0 23.1 24.3 24.8
% chg (qoq) 8.3 1.5 1.5 64.4 129.0 2.0 0.0 84.4 75.4 88.2 88.2
9MCY2012 2332 1983 2035 296 12.7 56 47 0 306 13.1 89 29.0 217 216 9.3
9MCY2011 1767 1270 1400 367 20.8 34 44 0 356 20.2 108 30.2 249 248 14.0
% chg (yoy) 31.9 56.2 45.4 (19.2) 65.9 6.7 (70.8) (14.3) (17.7) (12.8) (12.7)
Top-line growth of 28.0% yoy driven by higher realization: The companys top-line increased by 28.0% yoy to `836cr mainly on account of higher realization. Average sales realization grew by 42.6% yoy to `28.1/scm, led by hike in selling prices of the industrial retail (from `26.5/kg to `29/kg) and CNG segment (from `49.9/kg to `51.9/kg). However, natural gas volume sold fell by 9.5% yoy to 295mmscm during the quarter.
(mmscm)
(`/scm
(` cr)
10.0
November 5, 2012
(%)
500
Higher other income boosts bottom-line growth: The cost of goods sold increased by 42.6% yoy to `699cr on account of higher proportion of expensive RLNG sales (47% of total volumes). Hence, the EBITDA grew by only 16.2% yoy to `137cr. Other income also increased by 87.8% yoy to `19cr. Consequently, the companys net profit increased by 24.8% yoy to `100cr.
(`/scm)
10.9
10.0 5.0 0.0 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 Avg. blended margin Avg. gas cost 5.9 5.9 4.7 2.3 3.9 4.6 6.1
60 40 20 -
(` cr)
40 20 (69.7)
(44.8)
November 5, 2012
(%)
60
(%)
15.0
(` cr)
13.2
80
Investment arguments
RLNG to mute volume growth decline: Over the past one year, there have been some delays in receiving gas from KG-D6 on account of declining gas production. The company is ensuring that the shortfall in volume is compensated by higher RLNG procurement. Further, the recent Gujarat High Courts verdict to compulsorily convert all cars to natural gas could result in higher demand for gas which is likely to support volumes for GGAS over the medium term. Regulatory overhang to persist: After the verdict of the Delhi HC, 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.
Bloomberg Consensus
22.8 23.5
21.1 22.4
November 5, 2012
(`)
Oct-07
Nov-09
Feb-11
Sep-10
7x
Source: Company, Angel Research
10x
13x
16x
Source: Angel Research; Note: For GGAS* FY13E = CY12E and FY14E = CY13E
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 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 has announced to acquire the entire 65% BG Groups stake in GGas.
November 5, 2012
May-12
19x
Aug-08
Mar-08
Dec-11
Oct-12
Jan-09
Jun-09
Apr-10
Jul-11
November 5, 2012
November 5, 2012
November 5, 2012
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 Interest Coverage (EBIT/Int.) (0.5) (1.6) 1,742.7 (0.6) (1.5) 1,706.9 (0.7) (1.3) 782.3 (0.7) (1.3) 226.1 (0.6) (1.3) 356.0 (0.6) (1.5) 368.3 1.8 5 26 63 (24) 1.7 5 27 62 (34) 1.9 3 25 52 (40) 2.3 2 25 43 (35) 2.7 2 24 42 (27) 2.9 2 26 44 (11) 23.4 28.3 25.1 24.4 29.0 23.6 33.8 39.2 32.0 29.5 34.4 33.3 29.3 35.8 33.2 27.1 71.8 29.2 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 13.9 69.8 2.1 20.9 20.9 11.2 70.0 2.7 21.4 21.4 9.8 70.0 6.2 42.7 42.7 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 21.2 21.2 25.9 10.0 61.5 22.8 22.8 27.7 10.0 75.8 23.5 23.5 29.1 11.0 85.3 23.9 18.9 5.4 0.5 1.2 6.5 1.7 22.0 17.3 5.0 2.7 2.4 12.2 3.4 14.9 12.3 4.5 4.0 1.8 7.9 2.9 14.1 11.5 4.9 3.3 1.4 8.4 2.9 13.1 10.8 3.9 3.3 1.0 7.8 2.5 12.7 10.3 3.5 3.7 0.8 7.2 2.2 CY08 CY09 CY10 CY11 CY12E CY13E
November 5, 2012
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):
November 5, 2012
10