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Gujarat Gas: Volumes remain constrained - Views on News from Equitymaster
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Gujarat Gas: Volumes remain constrained
Jul 31, 2008

Performance summary
  • Topline increases by 11% YoY during 2QCY08.
  • EBITDA margins decline to 18.4%, from 24.1% in 2QCY08.
  • Other income zooms almost 4 fold during the quarter on a YoY basis.
  • Bottomline registers a growth of 4.6% YoY owing to erosion in operating margin.
  • Topline and bottomline grow 4.3% YoY and 12% YoY respectively in 1HCY08.


Consolidated financial snapshot
(Rs m) 2QCY07 2QCY08 Change 1HCY07 1HCY08 Change
Net sales 2,754 3,061 11.1% 6,080 6,344 4.3%
Income from services 80 49 -38.8% 142 114 -19.7%
Total operating income 2,835 3,110 9.7% 6,221 6,458 3.8%
Expenditure 2,152 2,539 18.0% 4,921 5,169 5.0%
Operating profit (EBDITA) 682 571 -16.3% 1,300 1,289 -0.9%
EBDITA margin (%) 24.1% 18.4%   20.9% 20.0%  
Other income 47 179 277.1% 85 228 167.6%
Interest 0 0 24.8% 1 1 -11.3%
Depreciation 95 103 8.7% 185 206 11.5%
Profit before tax 635 647 1.9% 1,200 1,310 9.2%
Tax 212 206 -2.8% 401 415 3.6%
Profit after tax/(loss) 422 441 4.3% 799 895 12.0%
Minority interest 3 2 -41.8% 3 3 10.7%
Net profit/(loss) 420 439 4.6% 796 891 12.0%
Net profit margin (%) 14.8% 14.1%   12.8% 13.8%  
No. of shares (m)       64.1 64.1  
Diluted earnings per share (Rs)*         25.3  
Price to earnings ratio (x)*         9.1  
* On trailing twelve months basis

What has driven performance in 2QCY08?
  • Gujarat Gas sold 264 m standard cubic meters (mmscm) of gas during 2QCY08, down from 268 mmscm in 2QCY07. Gas supply to the company remained constrained and was further affected by an unplanned shutdown in production from one of the suppliers for 26 days during 2QCY08.

  • Gujarat Gas reported a 28% sales growth in the CNG segment of over 21 mmscm as conversion of cars crossed 2,000 per month.

    Cost break-up
    (Rs m) 2QCY07 2QCY08 Change 1HCY07 1HCY08 Change
    Raw materials 1,861 2,174 16.8% 4,411 4,557 3.3%
    % sales 65.7% 69.9%   70.9% 70.6%  
    Staff cost 82 99 21.0% 159 193 21.2%
    % sales 2.9% 3.2%   2.6% 3.0%  
    Other expenditure 209 265 26.9% 351 419 19.3%
    % sales 7.4% 8.5%   5.6% 6.5%  
    Total cost 2,152 2,539 64.8% 4,921 5,169 43.8%
    % sales 75.9% 81.6%   79.1% 80.0%  

  • The company plans to expand to new areas for which it has filed its application to the regulator. However, the company is currently facing severe volumes constraints, which the management plans to overcome in the medium term from additional gas expected to be available in the east coast as well as from LNG imports. Both these sources will be more expensive than its current sources.

  • The company reached a settlement with a transmission debtor regarding certain old disputes for which provisions had been made in earlier years. A total of Rs 91 m has been written back as a result of the settlement.

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 the 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 230 at a price to earnings multiple of 9.1 times its trailing 12 months earnings. While the stock appears fairly valued at the current juncture, supply related concerns should continue to weight heavy on the company’s performance in the short to medium term.

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