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Gujarat Gas: Volumes down, margins up - Views on News from Equitymaster
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Gujarat Gas: Volumes down, margins up
Jul 30, 2009

Performance summary
  • Topline increases by 8%YoY during 2QCY09 led by realisations growth.
  • EBITDA margins increases from 18.4% in 2QCY08 to 22.3% during the quarter.
  • Other income decreases by 63% during 2QCY09 over the corresponding quarter last year.
  • Bottomline registers a growth of 8% YoY during 2QCY09.
  • For 1HCY09, the company registers a decline of 1% in the topline and 6% in the bottomline.

Consolidated financial snapshot
(Rs m) 2QCY08 2QCY09 Change 1HCY08 1HCY09 Change
Net sales 3,061 3,316 8.3% 6,344 6,283 -1.0%
Other operating income 49 77 56.9% 114 173 51.7%
Total operating income 3,110 3,392 9.1% 6,458 6,456 0.0%
Expenditure 2,539 2,636 3.8% 5,169 5,139 -0.6%
Operating profit (EBDITA) 571 757 32.5% 1,289 1,317 2.2%
EBDITA margin (%) 18.4% 22.3%   20.0% 20.4%  
Other income 179 66 -62.9% 228 142 -37.7%
Interest 0 0 19.1% 1 1 8.8%
Depreciation 103 116 12.8% 206 226 9.4%
Profit before tax 647 707 9.2% 1,310 1,233 -5.9%
Tax 206 231 11.8% 415 391 -5.9%
Profit after tax/(loss) 441 476 8.0% 895 842 -5.9%
Net profit margin (%) 14.2% 14.0%   13.9% 13.0%  
No. of shares (m)         64  
*On trailing 12 months earnings

What has driven performance in 2QCY09?
  • Gujarat gas registered an 8% YoY growth in the topline during 2QCY09 due to growth in realisations from retail markets and optimisation of market mix. The compressed natural gas (CNG) market segment grew by 16% YoY in 2CY09 taking the tally of CNG vehicles in the company’s markets to over 95,000. During the period, the company connected over 10,200 households to piped natural gas (PNG).

  • On the volumes front, Gujarat Gas procured regasified LNG to the tune of 0.7 m standard cubic meters per day (mmscmd). The additional gas was sold primarily to the industrial retail segment. However, there was a decline in overall volumes during 2QCY09 to 249 mmscm from 264 mmscm due to lower level of supplies from two long term sources. For 1HCY09, the company sold 480 mmscm compared to 577 mmscm during the corresponding period last year.

  • EBIDTA margins improved during 2QCY09 by 3.9% as raw material cost declined by 1.3% (as a percentage of sales) on a YoY basis, while other expenditure declined by 2.7% (as a percentage of sales).

    Cost break-up
    (Rs m) 2QCY08 2QCY09 Change
    Raw materials 2,174 2,327 7.0%
    % sales 69.9% 68.6%  
    Staff cost 99 111 11.7%
    % sales 3.2% 3.3%  
    Other expenditure 265 198 -25.5%
    % sales 8.5% 5.8%  
    Total cost 2,539 2,636 -6.7%
    % sales 81.6% 77.7%  

  • The company’s board has recommended issue of bonus shares at 1:1.

What to expect?
The decline in gas availability from the PMT fields and the new city gas regulations are a cause for concern. However, 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.

Gujarat Gas is currently trading at Rs 369 at a price to earnings multiple of 15 times its trailing 12 months earnings and a multiple of 12.5 times our CY11 estimated earnings. Given the supply side tail winds the company is likely to continue to face in the immediate future, we hold a negative view on the stock at current levels.

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May 26, 2015 (Close)


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