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Gujarat Gas: Volumes drive growth - Views on News from Equitymaster
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Gujarat Gas: Volumes drive growth
Apr 27, 2010

Gujarat Gas has announced its 1QCY10 results. The company has reported a 35% YoY and 70% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline increases by 35%YoY during 1QCY10 on account of higher LNG volumes.
  • EBITDA margins expand from 18.3% to 25% during the quarter.
  • Other income decreases by 48% during 1QCY10 over the corresponding quarter last year.
  • Bottomline registers a growth of 70% YoY during the period.


Consolidated financial snapshot
(Rs m) 1QCY09 1QCY10 Change
Net sales    2,968    4,014 35.3%
Other operating income          96          86 -9.9%
Total operating income    3,064    4,100 33.8%
Expenditure    2,504    3,075 22.8%
Operating profit (EBDITA)        560    1,025 83.1%
EBDITA margin (%) 18.3% 25.0%  
Other income          76          40 -47.7%
Interest            0            0 9.1%
Depreciation        110        128 17.2%
Profit before tax        526        936 78.0%
Tax        160        316 97.5%
Profit after tax/(loss)        366        620 69.5%
Net profit margin (%) 11.9% 15.1%  
No. of shares (m)      128.2  
Diluted earnings per share (Rs)*         15.6  
Price to earnings ratio (x)*         18.5  
*On trailing 12 months earnings

What has driven performance in 1QCY10?
  • Gujarat gas registered a 35% YoY growth in the topline during 1QCY10 due to higher supplies of gas from domestic sources and short term liquefied natural gas (LNG). Although Panna Mukta Tapti gas supplied by GAIL is the largest source of supply, short term LNG makes up for the short term shortfall. The company has received an allocation of 0.6 million standard cubic meters of day of KG D6 gas, which will reach the company’s network in the future.

  • In terms of volumes, industrial retail volumes grew on the back of higher supply and addition to the customer base. In the auto fuel segment, more than 5,700 vehicles were converted to CNG during 1QCY10, taking the total number of CNG vehicles in the company’s area to more than 115,000. Two new CNG stations were added during the quarter.

  • EBIDTA margins expanded 6.7% during 1QCY10 as raw material cost decreased by 4% (as a percentage of sales) on a YoY basis, while other expenditure declined by 2.2% (as a percentage of sales).

    Cost break-up
    (Rs m) 1QCY09 1QCY10 Change
    Raw materials    2,193    2,774 26.5%
    % sales 71.6% 67.7%
    Staff cost          99        107 8.3%
    % sales 3.2% 2.6%
    Other expenditure        211        193 -8.3%
    % sales 6.9% 4.7%
    Total cost    2,504    3,075 26.5%
    % sales 81.7% 75.0%

What to expect?
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.

However, the decline in gas availability from the PMT fields and the new city gas regulations are a cause for concern. The company has been successful in procuring short term supplies of LNG and is also set to receive gas from Reliance Industries’ KG basin production.

Gujarat Gas is currently trading at Rs 289 at a price to earnings multiple of 17 times its estimated CY11 earnings. We would advise against taking fresh positions in the stock at the current juncture.

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