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Gujarat Gas: High gas costs dent margins - Views on News from Equitymaster
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Gujarat Gas: High gas costs dent margins
Apr 29, 2011

Gujarat Gas has announced its 1QCY11 results. The company has reported a 30% YoY and 17% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline increases by 30%YoY during 1QCY11.
  • Operating profit registers a growth of 6% YoY, operating margins contract from 25% to 21% (YoY) during the quarter.
  • Bottomline registers a growth of 17% YoY during the period, net profit margins down by 1.5%(YoY)


Consolidated financial snapshot
(Rs m) 1QCY10 1QCY11 Change
Net sales 4,014 5,203 29.6%
Other operating income 86 88 2.3%
Total operating income 4,100 5,291 29.0%
Expenditure 3,075 4,204 36.7%
Operating profit (EBDITA) 1,025 1,088 6.1%
EBDITA margin (%) 25.0% 20.6%  
Other income 40 101 156.0%
Interest 0 0 9.4%
Depreciation 128 145 13.0%
Profit before tax 936 1,044 11.4%
Profit before tax margins (%) 22.8% 19.7%  
Tax 316 321 1.3%
Profit after tax/(loss) 620 723 16.6%
Net profit margin (%) 15.1% 13.7%  
Minority share 3 2 -31.4%
Profit after tax for the Group 617 721 16.9%
No. of shares (m)   128  
Diluted earnings per share (Rs)*   5.6  
Price to earnings ratio (x)*   17.9  

What has driven performance in 1QCY11?
    Cost break-up
    (Rs m) 1QCY10 1QCY11 Change
    Raw materials 2,774 3,799 36.9%
    % sales 67.7% 71.8%  
    Staff cost 107 141 31.0%
    % sales 2.6% 2.7%  
    Other expenditure 193 264 36.6%
    % sales 4.7% 5.0%  
    Total cost 3,075 4,204 36.7%
    % sales 75.0% 79.4%  

  • The company registered a 30% YoY increase in net sales during the quarter. More than 8,700 (vs. 5,700 last year) vehicles were converted to CNG during the quarter. However, the Industrial sales witnessed a sequential decline. The company currently distributes 3.4 mmscmd (versus 3.2 mmscmd in 1QCY10) of natural gas. It has sold gas volumes of 303 mmscm in the quarter, down 1.9% QoQ.

  • EBIDTA margins contracted by 4.5% YoY mainly due to raw material costs (mainly the cost of gas) that increased by 4.1% (as a percentage of sales) on a YoY basis. Gas cost was higher due to higher RLNG prices.

  • Net profits for the quarter were up by 17% YoY on account of increase in 156% increase in 'Other income', partially offset by increase in tax, depreciation and interest costs. However, the margins contracted by 1.5% YoY on account of high revenue base.

What to expect?
The company is making efforts to secure competitively priced gas to ensure assured supply to customers. We expect the investment in network expansion and expansion of CNG and other infrastructure to act as positive catalyst for future performance. It will be further strengthened if its bid application for a new Geographical area in Gujarat is approved by Petroleum and Natural Gas Regulatory Board. As far as current valuations are concerned, Gujarat Gas is currently trading at Rs 375 at a price to earnings multiple of 18 times trailing twelve months earnings. Regarding estimates, we are in the process of revising our forecasts and will update our subscribers soon.

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