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Gujarat Gas: LNG volumes fuel growth - Views on News from Equitymaster

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Gujarat Gas: LNG volumes fuel growth

Jul 23, 2010

Gujarat Gas has announced its 2QCY10 results. The company has reported a 24% YoY and 22% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline increases by 24%YoY during 2QCY10 on account of higher LNG volumes.
  • EBITDA margins remain steady at 22.3% during the quarter.
  • Other income decreases by 14% during 2QCY10 over the corresponding quarter last year. Bottomline registers a growth of 22% YoY during the period.

Consolidated financial snapshot
(Rs m) 2QCY09 2QCY10 Change 1HCY09 1HCY10 Change
Net sales 3,316 4,094 23.5% 6,283 8,108 29.0%
Other operating income 77 93 21.1% 173 179 3.9%
Total operating income 3,392 4,187 23.4% 6,456 8,287 28.4%
Expenditure 2,636 3,253 23.4% 5,139 6,328 23.1%
Operating profit (EBDITA) 757 934 23.4% 1,317 1,959 48.8%
EBDITA margin (%) 22.3% 22.3%   20.4% 23.6%  
Other income 66 57 -13.7% 142 97 -31.8%
Interest 0 3 931.1% 1 4 482.2%
Depreciation 116 134 15.1% 226 262 16.1%
Profit before tax 707 854 20.9% 1,233 1,791 45.3%
Tax 231 274 18.9% 391 591 51.1%
Profit after tax/(loss) 476 580 21.8% 842 1,200 42.6%
Net profit margin (%) 14.0% 13.8%   13.0% 14.5%  
No. of shares (m)         128  
Diluted earnings per share (Rs)*         16  
Price to earnings ratio (x)*         19  
*On trailing 12 months earnings

What has driven performance in 2QCY10?
  • Gujarat gas registered a 24% YoY growth in the topline during 2QCY10 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 m standard cubic meters (mmscm) of day of KG D6 gas on a fall back-basis. It is negotiating for the finalisation of a sales purchase agreement.

  • In terms of volumes, total gas sold during the quarter was 297 mmscm compared to 249 mmscm in 2QCY09. Industrial retail volumes grew by 20% on the back of higher supply and addition to the customer base. In the auto fuel segment, more than 5,500 vehicles were converted to CNG during 2QCY10, taking the total number of CNG vehicles in the company’s area to more than 119,000. Two new CNG stations were added during the quarter.

  • EBIDTA margins remained stable during 2QCY10 as raw material cost increased by 0.7% (as a percentage of sales) on a YoY basis, while staff cost and other expenditure declined by 0.4% and 0.3% respectively (as a percentage of sales).

    Cost break-up
    (Rs m) 2QCY09 2QCY10 Change
    Raw materials 2,327 2,903 24.7%
    % sales 68.6% 69.3%  
    Staff cost 111 120 8.3%
    % sales 3.3% 2.9%  
    Other expenditure 198 230 16.4%
    % sales 5.8% 5.5%  
    Total cost 2,636 3,253 49.4%
    % sales 77.7% 77.7%  

What to expect?
The company is performing well in industrial retail, where the margins are better than in 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 305 at a price to earnings multiple of 17 times its estimated CY12 earnings. We would advise against taking fresh positions in the stock at the current juncture.

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