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Gujarat Gas: Volume and pricing concerns

Feb 22, 2013

Gujarat Gas company Ltd has announced its results for the fourth quarter of financial year 2012 (4QCY12). The company has reported a 17.9% YoY and 184.4% YoY growth in the topline and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales for the quarter were up 17.9% on a year on year basis (YoY) during the quarter. For the full year (CY12), the sales registered a growth of 28.8% YoY.
  • Operating profit for the quarter registered a 411% YoY growth with margins at 13.8% as compared to 3.2% in 4QCY11. For CY12, the operating profits grew by 5.2% YoY with margins at 12.4% as compared to 15.1% for CY11.
  • Net profits for the group grew by 184.4% YoY during the quarter, with margins at 9.3% as compared to 3.8% in 4QCY11. For CY12, the net profit grew by 4.8% YoY, with margins at 9.3% as compared to 11.5% in for CY11.

Consolidated financial performance snapshot
Rs m 4QCY11 4QCY12 Change CY11 CY12 Change
Net Sales 6,415 7,565 17.9% 23,819 30,669 28.8%
Expenditure 6,210 6,522 5.0% 20,216 26,878 33.0%
Operating profit (EBDITA) 204 1,044 410.7% 3,603 3,791 5.2%
EBDITA margin (%) 3.2% 13.8%   15.1% 12.4%  
Other income 304 160 -47.3% 932 963 3.4%
Interest 0 0 -17.4% 1 2 6.0%
Depreciation 155 182 17.4% 602 658 9.3%
Profit before tax 353 1022 189.4% 3,931 4,094 4.2%
Profit before tax margins (%) 5.5% 13.5%   16.5% 13.4%  
Tax 103 316 207.7% 1,182 1,209 2.2%
Profit after tax/(loss) 250 706 181.9% 2,748 2,885 5.0%
Net profit margin (%) 3.9% 9.3%   11.5% 9.4%  
Minority share 4 4 15.5% 13 19 43.0%
Profit after tax for the Group 247 701 184.4% 2,735 2,866 4.8%
Group PAT margins (%) 3.8% 9.3%   11.5% 9.3%  
No. of shares (m)         128  
Diluted earnings per share (Rs)*         22.3  
Price to earnings ratio (x)*         13.0  
*based on trailing 12 months earnings

What has driven the performance in 4QCY12?
  • The company registered a 17.9% YoY growth in sales despite a decline in volumes. The gas sales volumes for the quarter declined to 270 million standard cubic metres/mscm (down 8% QoQ), down 14.0% YoY. The growth in sales was mainly on account of better realizations (Rs 28.03 per scm , up 37% YoY). As per the management, the company has increased its customer base during the quarter. The company has connected 7,300 residential customers and converted around 5,100 vehicles to CNG during the quarter. The volumes in the industrial segment have been impacted on account of increasing gas prices. For the full year, the sales grew 28.8% YoY. This was mainly on account of around 39% YoY growth in average realizations. However, the gas sales volumes in CY12 declined to 1,157 mscm (down 7.1% YoY). The management said that company's distribution network has been extended by laying around 59 km of additional steel pipelines in CY12. Besides; GGCL commissioned 8 new CNG stations, connected 34,600 residences and converted more than 23,400 vehicles to CNG during the year. However, the volumes were impacted in the industrial segment on account of rising gas costs.

  • The operating profits for the quarter grew 411% YoY on account of higher realizations (up around 37% YoY) and relatively lower hike in gas costs (Rs 22.4 per scm, up around 23% YoY). The gross profit per scm for the quarter almost doubled in comparison to last year. However, on a sequential basis, the gross spreads declined from Rs 6.1 per scm in 3QCY12 to Rs 5.66 per scm in the current quarter. The gas costs are expected to remain high on account of higher share of imported gas/RLNG (47% in the current sourcing mix). For CY12, the operating profits grew by 5.2 % YoY while margins declined to 12.4% from 15.1% in CY11. The margins declined since increase in gas costs (45.4% YoY) was much higher than increase in realizations (38.7% YoY). The gross spread per unit of gas stood at Rs 5.04 per scm, as compared to Rs 4.4 per scm in CY11.

    Cost breakup
    Rs m 4QCY11 4QCY12 Change CY11 CY12 Change
    Raw material 5,701 6,036 5.9% 18,395 24,836 35.0%
    as a % of Sales 88.9% 79.8%   77.2% 81.0%  
    Employee expenses 158 158 -0.4% 608 640 5.2%
    as a % of Sales 2.5% 2.1%   2.6% 2.1%  
    Other expenses 351 327 -6.9% 1,213 1,402 15.6%
    as a % of Sales 5.5% 4.3%   5.1% 4.6%  
    Total expenses 6,210 6,521 5.0% 20,217 26,878 33.0%
    as a % of Sales 96.8% 86.2%   84.9% 87.6%  

  • Net profits for the group grew by around 184.4% YoY for the group during the quarter, with margins at 9.3% as compared to 3.8% in 4QCY11 (down from 12.0% in 3QCY12). The other income for the quarter witnessed a decline of 51% YoY while the depreciation expenses grew by 17.4% YoY. For CY12, the bottomline grew by around 4.8% YoY while margins declined to 9.3% as compared to 11.5% in CY11. The higher gas costs are the prime reason for this decline.

What to expect?
The falling gas sales volumes are a key concern for GGCL. Moreover, with higher share of costlier imported gas (around 47%) and constrained domestic supplies, we believe that the scope of increasing gas prices is limited and can impact the demand adversely.

The stock is currently trading at a trailing twelve months PE of 13.0x. On account of the reasons mentioned above, we suggest our investors to Sell the stock .

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May 26, 2015 (Close)


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