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Gujarat Gas: Gas supply issues continue - Views on News from Equitymaster

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Gujarat Gas: Gas supply issues continue
Feb 27, 2009

Performance summary
  • Topline increases by 5% YoY during CY08.
  • EBITDA margins decline to 18.1% during the year as compared to 20.2% in CY07.
  • Other income more than doubles during CY08 over the previous year.
  • Bottomline registers a growth of 5% YoY.
  • Topline and bottomline decline 5% YoY and 18% YoY respectively in 4QCY08.


Consolidated financial snapshot
(Rs m) 4QCY07 4QCY08 Change CY07 CY08 Change
Net sales 3,377 3,204 -5.1% 12,136 12,739 5.0%
Other operating income 82 104 27.7% 311 273 -12.1%
Total operating income 3,459 3,309 -4.3% 12,446 13,013 4.5%
Expenditure 2,818 2,838 0.7% 9,933 10,660 7.3%
Operating profit (EBDITA) 641 471 -26.6% 2,513 2,352 -6.4%
EBDITA margin (%) 18.5% 14.2% 20.2% 18.1%
Other income 50 98 96.8% 175 412 135.6%
Interest 0 0 34.2% 1 1 4.9%
Depreciation 101 106 4.7% 384 418 8.7%
Profit before tax 589 462 -21.6% 2,302 2,345 1.9%
Tax 194 137 -29.3% 766 730 -4.6%
Profit after tax/(loss) 395 325 -17.8% 1,537 1,615 5.1%
Minority interest 3 3 6.7% 7 9 20.1%
Net profit/(loss) 392 322 -18.0% 1,529 1,606 5.0%
Net profit margin (%) 11.3% 9.7% 12.3% 12.3%
No. of shares (m) 64.1
Diluted earnings per share (Rs) 25.1
Price to earnings ratio (x) 8.73

What has driven performance in CY08?
  • Gujarat Gas sold 1,089 m standard cubic meters (mmscm) of gas during CY08, down from 1,196 mmscm in CY07. The company continued to experience a shortage in gas supply which impacted the sales to industrial customers. Small to midsized industrial units could be supplied only about 75% of their gas requirement due to shortage in gas supply.

  • Gujarat Gas reported a 30% sales growth in the CNG segment this quarter, with more than 86,000 vehicles now plying on natural gas in the company’s markets.

  • The sharp depreciation of the Rupee affected the gas cost as most of the gas purchased by the company is in dollar denominated terms. The company has a contractual right to pass through impact through subsequent price changes.

  • EBITDA margins during CY08 reduced by 2.1% on the back of higher raw materials cost which increased by 1.1% (as a % of sales) during the year. Staff cost also increased by 0.7% (as a % of sales) during the year.

  • The company reached a settlement with a transmission debtor regarding certain old disputes for which provisions had been made in earlier years. A total of Rs 91 m has been written back as a result of the settlement during CY08.

  • The company incurred more than Rs 988 m of capital expenditure during the year towards pipeline network, CNG and other infrastructure. It also continues to explore new sources of gas including that from the Indian east coast.

What to expect?
The decline in gas availability from the PMT fields and the new city gas regulations are a cause for concern. However, the company is performing well in industrial retail, where the margins are better than the bulk industrial sales. Also, the CNG business, another high margin segment is expected to have a larger share in the revenue mix of the company going forward.

Gujarat Gas is currently trading at Rs 219 at a price to earnings multiple of 7.1 times our CY10E earnings. We hold a favourable view on the company.

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