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  • May 22, 2014 - Gujarat Gas: Poor volumes, high gas cost drag profits

Gujarat Gas: Poor volumes, high gas cost drag profits

May 22, 2014 | Updated on Oct 30, 2019

Gujarat Gas Company Ltd has announced its results for the quarter ended March 2014. During the quarter, the company has reported a flattish year on year (YoY) growth of 0.5% in the net sales while net profits for the quarter declined 16.9% YoY.

Performance summary
  • Net sales for the quarter grew by 0.5% on a year on year basis (YoY).
  • Operating profit for the quarter was up 3.1% YoY with margins at 9.5%, much lower than the margins at 17.2% in the preceding quarter (margins at 9.7% in 1QCY13).
  • Net profits for the group declined 16.9% YoY during the quarter, with margins at 6.4%, down from 11.6% in the preceding quarter (7.8% in 1QCY13).
  • 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.
  • The company has extended the financial year beginning 1 Jan 2013 to close on 31 March 2014.
  • Petroleum Natural Gas and Regulatory Board (PNGRB) has granted the company an extension of exclusivity for ten years to lay, build and expand the CGD network in the authorised geographical area of Surat-Bharuch-Ankleshwar up to 31 March 2024 .

Consolidated financial performance snapshot
(Rs m) 1QFY14 5QFY14 Change
Net Sales 7,629 7,664 0.5%
Other operating income 50 56.5 13.0%
Total operating income 7,679 7,721 0.5%
Expenditure 6,956 6,976 0.3%
Operating profit (EBDITA) 722 744 3.1%
EBDITA margin (%) 9.5% 9.7%  
Other income 259 219 -15.5%
Interest 0.4 3.2 700.0%
Depreciation 186.8 203.7 9.0%
Profit before tax 794 756 -4.8%
Profit before tax margins (%) 10.4% 9.9%  
Tax 199 260 30.9%
Profit after tax/(loss) 595 496 -16.7%
Net profit margin (%) 7.8% 6.5%  
Minority share 2.5 3.4 36.0%
Profit after tax for the Group 592.8 492.6 -16.9%
Group PAT margins (%) 7.8% 6.4%  
No. of shares (m)   128  
Diluted earnings per share (Rs)*   28.0  
Price to earnings ratio (x)*   13.4  
* (Book value as on 31st December 2013)

What has driven performance in 5QFY14
  • The net sales during the quarter registered a flattish growth of 0.5% YoY on account of muted volumes of 2.41 million standard cubic metre per day (mscmd), down 17.8% YoY. However, the decline in volumes was offset to some extent by higher realizations, up by around 22% YoY.

  • The operating profits for the quarter were up 3.1% YoY. The gross margin during the quarter stood at Rs 5.6 per mscmd, down from Rs 7.9 per mscmd in the preceding quarter (Rs 4.5 per mscmd in 1QFY14). During the quarter, the margins witnessed a sequential decline due to higher cost of gas as the share of costlier LNG went up, also impacting the volumes during the quarter

    Cost breakup
    (Rs m) 1QFY14 5QFY14 Change
    Raw material cost 6,440 6,449 0.1%
    as a % of sales 84.4% 84.1%  
    Staff expenses 165 155 -6.2%
    as a % of sales 2.2% 2.0%  
    Other expenses 351 373 6.3%
    as a % of sales 4.6% 4.9%  
    Total expenses 6,956 6,976 0.3%
      91.2% 91.0%  

  • The net profits for the quarter declined by around 17% YoY due to weak operational performance, lower other income, higher depreciation expenses and higher effective tax rate.
What to expect?
The volume profile for Gujarat Gas seems disappointing and is unlikely to improve in the near future. Constrained domestic supplies and high dependence on RLNG which is relatively costlier is likely to restrict the demand from industrial customers. Post the merger of the company with GDNL, the company will be the largest CGD player. However, post merger, it won’t remain a debt free entity. Also, GSPC Gas, another company to be merged, is a loss making company.

The stock price of Gujarat Gas has moved up significantly with trailing twelve months price to earnings ratio (TTMPE) standing at 13.4. While the merger may bring synergies over the long term, the current valuations seem expensive for Gujarat Gas, We maintain a ‘Sell’ recommendation on the company.

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May 26, 2015 (Close)


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