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Gujarat Gas: Gas volumes continue to suffer - Views on News from Equitymaster
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Gujarat Gas: Gas volumes continue to suffer
Aug 8, 2014

Gujarat Gas Company Ltd has announced its results for the quarter ended June 2014. During the quarter, the company has reported 8.6% year on year (YoY) decline in the net sales while net profits for the quarter declined 3.4% YoY.

Performance summary
  • Net sales for the quarter declined by 8.6% on a year on year basis (YoY).
  • Operating profit for the quarter declined 16.8% YoY with margins at 19.0%, down from 20.8% in 1QFY13.
  • Net profits for the group declined 3.4% YoY during the quarter, with margins at 14.2%, up from 13.4% 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.

Consolidated financial performance snapshot
(Rs m) 1QFY14 1QFY15 Change
Net Sales 7,468 6,830 -8.6%
Other operating income 45 51 13.3%
Total operating income 7,514 6,881 -8.4%
Expenditure 5,957 5,585 -6.2%
Operating profit (EBDITA) 1,556 1,296 -16.8%
EBDITA margin (%) 20.8% 19.0%  
Other income 128 255 98.6%
Interest 0.5 0.5 0.0%
Depreciation 189 151 -20.4%
Profit before tax 1,495 1,399 -6.4%
Profit before tax margins (%) 20.0% 20.5%  
Tax 489 429 -12.2%
Profit after tax/(loss) 1,006 970 -3.6%
Net profit margin (%) 13.5% 14.2%  
Minority share 3 1 -69.2%
Profit after tax for the Group 1,004 969 -3.4%
Group PAT margins (%) 13.4% 14.2%  
No. of shares (m)   128  
Diluted earnings per share (Rs)*   27.8  
Price to earnings ratio (x)*   15.7  
*On a trailing 12 months basis

What has driven performance in 1QFY15
  • The net sales during the quarter declined on account of fall in gas sales volumes, slightly offset by improved realisations.

  • The operating profit margin for the quarter contracted because of increase in the gas cost (as a % of sales).

    Cost breakup
    (Rs m) 1QFY14 1QFY15 Change
    Raw material cost 5,420 5,111 -5.7%
    as a % of sales 72.6% 74.8%  
    Staff expenses 179 153 -14.4%
    as a % of sales 2.4% 2.2%  
    Other expenses 359 321.6 -10.4%
    as a % of sales 4.8% 4.7%  
    Total expenses 5,957 5,585 -6.2%
    as a % of sales 79.8% 81.8%  

  • The decline in the bottomline was relatively modest as higher other income, lower depreciation expenses and slightly higher effective tax rate compensated for a weak operating performance.
What to expect?
Constrained domestic supplies and increasing gas costs remain a key concern for the company. Increasing share of costlier LNG may also restrict the demand from industrial customers. Post the merger of the company with GDNL, the company will be the largest CGD player and will have synergies of scale. However, post merger, it won't remain a debt free entity.

The stock price of Gujarat Gas has moved up significantly with trailing twelve months price to earnings ratio (TTMPE) standing at 15.7. 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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