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Gujarat Gas: Topline growth offsets supply issues - Views on News from Equitymaster
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Gujarat Gas: Topline growth offsets supply issues
Mar 1, 2011

Gujarat Gas has announced its 4QCY2010 annual results. The company has reported a 33.0% YoY and a 78.5% YoY growth in topline and bottomline respectively. Here is our analysis of the results.

Performance summary
  • Top line increased by 33% YoY during the quarter. For the full year CY10, topline was up by 30.3% YoY.
  • EBITDA margins expanded to 25.2% during the quarter from 19.9% during last year. For the full year CY10, the margins expanded to 22.5% from 19.7% last year.
  • Bottomline registered a growth of 78.4% YoY during the quarter, with net profit margins at 16.1% (versus 12.0% last year). For the full year CY10, net income registered an increase of 48.0% YoY with net income margin at 14.0% (versus 12.3% last year).
  • The company has recommended a regular dividend of Rs 4.0 and a special dividend of Rs 8 per equity share.

Consolidated financial snapshot
(Rs m) 4QCY09 4QCY10 Change CY09 CY10 Change
Net sales 3,861 5,135 33.0% 14,197 18,493 30.3%
Expenditure 3,093 3,842 24.2% 11,402 14,337 25.7%
Operating profit (EBDITA) 769 1,293 68.2% 2,795 4,156 48.7%
EBDITA margin (%) 19.9% 25.2%   19.7% 22.5%  
Other income 63 77 23.0% 266 224 -15.9%
Interest (net) 0 1 60.0% 1.36 4.62 239.7%
Depreciation 127 142 11.9% 473.82 542.1 14.4%
Profit before tax 704 1,228 74.3% 2,586 3,833 48.2%
Profit before tax margin (%) 18.2% 23.9%   18.2% 20.7%  
Tax 242 403 66.5% 836 1,243 48.7%
Profit after tax/(loss) 462 825 78.4% 1,750 2,590 48.0%
Net profit margin (%) 12.0% 16.1%   12.3% 14.0%  
Minority share 2 4 72.2% 9 13 48.4%
Profit after tax for Group 460 821 78.5% 1,742 2,577 48.0%
No. of shares (m)         129  
Diluted earnings per share (Rs)           20.0  
Price to earnings ratio (x)           18.7  

What has driven performance in 4QCY10?
  • Gujarat gas achieved a topline growth of 33.0% YoY on back of 13% YoY increase in gas sales volumes as more than 8,800 vehicles switched to using CNG. The company managed to sell 309 mmscm this quarter versus 274 mmscm last year. For FY10, the topline registered an increase of 30.3% YoY as volumes of gas sold increased from 1,212 mmscm versus 1,035 mmscm last year.

  • The company’s operating profit registered an impressive 68.2% YoY growth with margins expanding by 5.3% YoY to 25.2%. The margins improved on account of an increase in topline and 3.5% reduction in raw material costs (as a % of sales) on a YoY basis. Other operating expenses also declined by 1.8% YoY during the quarter (as a % of sales).

  • The bottomline of the company registered a whopping 78.4% YoY increase on account of increase in the top line and effective cost management. As a result, the net profit margins for the quarter improved by 4.1% YoY to 16.1%.

    Cost break-up
    (Rs m) 4QCY09 4QCY10 Change CY09 CY10 Change
    Raw materials 2,676 3,382 26.4% 10,031 12,865 28.2%
    % sales 69.3% 65.9%   70.7% 69.6%  
    Staff cost 122 142 16.7% 455 499 9.8%
    % sales 3.1% 2.8%   3.2% 2.7%  
    Other expenditure 295 318 8.0% 916 973 1.9%
    % sales 7.6% 6.2%   6.90% 6.40%  
    Total cost 3,093 3,842 24.2% 11,402 14,337 7.0%
    % sales 80.1% 74.8%   80.3% 77.5%  

What to expect?
At current price of Rs 374.5, the stock trades at 18.0 times its CY12 estimated earnings per share. (Research Pro subscribers, click here).

The management has indicated a fresh approach to pricing by using alternate fuels in the various markets that it operates in. Also, the company plans to invest in extension of its network, CNG and infrastructure to expand to new areas and has already bid for a new area in Gujarat under third round of bidding by PNGRB which is still under evaluation.

The company has shown an impressive performance during the quarter and full year. Though sourcing the RLNG (regasified LNG) at competitive prices to counter domestic shortage of gas supply remains an issue, we are positive on the city gas distribution story over the long-term and believe that Gujarat Gas has a strong momentum going for it in Gujarat, given its early mover advantage and a strong track record.

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