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Gujarat Gas : A weak quarter - Views on News from Equitymaster

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Gujarat Gas : A weak quarter
Mar 3, 2015

Gujarat Gas Company Ltd has announced its results for the quarter ended December 2014. During the quarter, the company has reported 23.3% year on year (YoY) decline in the net sales while net profits for the quarter declined 15.1% YoY.

Performance summary
  • Net sales for the quarter declined by 23.3% on a year on year basis (YoY).
  • Operating profit for the quarter declined 20.4% YoY with margins at 17.9%, higher than 17.3% in 3QFY14.
  • Net profits for the group declined 15.1% YoY during the quarter, with margins at 12.9%,up from 11.7% in 3QFY14.
  • The Board of Directors in its meeting held on 21 April 2014 has approved the amalgamation between Gujarat Gas Company Ltd, GSPC Gas Company Ltd, Gujarat Gas trading
  • Company Ltd, Gujarat Gas Financial Services Ltd and GSPC Distribution Services Networks Ltd. The scheme is subject to relevant statutory approvals.

(Rs m) 3QFY14 3QFY15 Change 9MFY14 9MFY15 Change
Net Sales 7,749 5,942 -23.3% 23,500 19,532 -16.9%
Other operating income 53 42 -21.1% 134 142 5.6%
Total operating income 7,802 5,984 -23.3% 23,634 19,674 -16.8%
Expenditure 6,463 4,917 -23.9% 18,869 16,214 -14.1%
Operating profit (EBDITA) 1,339 1,066 -20.4% 4,766 3,459 -27.4%
EBDITA margin (%) 17.3% 17.9%   20.3% 17.7%  
Other income 171 174 1.4% 405 611 50.8%
Interest 1 1 0.0% 2 2 0.0%
Depreciation 197 149 -24.1% 578 461 -20.3%
Profit before tax 1,313 1,090 -17.0% 4,591 3,608 -21.4%
Profit before tax margins (%) 16.9% 18.3%   19.5% 18.5%  
Tax 403 321 -20.3% 1481 1095 -26.0%
Profit after tax/(loss) 911 769 -15.5% 3,110 2,512 -19.2%
Net profit margin (%) 11.8% 12.9%   13.2% 12.9%  
Minority share 4.2 0.1 -97.6% 9 1 -88.9%
Profit after tax for the Group 906 769 -15.1% 3,101 2,511 -19.0%
Group PAT margins (%) 11.7% 12.9%   13.2% 12.9%  
No. of shares (m)         128.25  
Diluted earnings per share (Rs)*         23.4  
Price to earnings ratio (x)*         25.3  
* On a trailing 12 months basis

What has driven performance in 3QFY15?
  • Sales for the quarter declined due to muted volumes on account of low demand from industrial segment. The realizations also declined were also down on a YoY basis.

    Cost breakup
    (Rs m) 3QFY14 3QFY15 Change 9MFY14 9MFY15 Change
    Raw material cost 5,925 4,376 -26.2% 17,301 14,656 -15.3%
    as a % of sales 76.5% 73.6%   73.6% 75.0%  
    Staff expenses 151 169 12.2% 473 475 0.4%
    as a % of sales 1.9% 2.8%   2.0% 2.4%  
    Other expenses 387 373 -3.6% 1095 1083 -1.1%
    as a % of sales 5.0% 6.3%   4.7% 5.5%  
    Total expenses 6,463 4,917 -23.9% 18,869 16,214 -14.1%
    as a % of sales 83.4% 82.8%   80.3% 83.0%  

  • The operating margins for the quarter improved to 17.9% from 17.3% on account of decline in gas cost, slightly offset by increase in staff expenses and other expenses (all as a % of sales).

  • The net profits for the quarter were down 15.1% while margins came in at 12.9%, up from 11.7% in 3QFY14. The net profit margins came in higher on account of decline in depreciation expenses and lower effective tax rate.
What to expect?

Both volume and realisations came down for Gujarat Gas in the quarter ended December 2014. A change in the depreciation policy supported the bottomline during the quarter.

However, volume growth remains a challenge. Further, given the competitive price of the other industrial fuels, margin expansion may be difficult.

Post the merger of the company with GDNL, the company will be the largest CGD player and will have synergies of scale. However, it won't remain a debt free entity. At current stock price, Gujarat Gas is trading at a trailing 12 months price to earnings ratio (PE) of around 25 times. We recommend investors not to Buy the stock at current prices.

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