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Gujarat Gas: Volumes restored, margins suffer - Views on News from Equitymaster
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Gujarat Gas: Volumes restored, margins suffer
Oct 24, 2008

Performance summary
  • Topline increases by 19% YoY during 3QCY08.
  • EBITDA margins decline to 18.3%, from 20.7% in 3QCY07.
  • Other income doubles during the quarter on a YoY basis.
  • Bottomline registers a growth of 15.3% YoY owing to erosion in operating margin.
  • Topline and bottomline grow 8.9% YoY and 13% YoY respectively in 9mCY08.

Consolidated financial snapshot
(Rs m) 3QCY07 3QCY08 Change 9mFY07 9mCY08 Change
Net sales 2,679 3,191 19.1% 8,759 9,535 8.9%
Other operating income 87 55 -37.0% 229 169 -26.3%
Total operating income 2,766 3,246 17.3% 8,988 9,704 8.0%
Expenditure 2,195 2,653 20.9% 7,116 7,822 9.9%
Operating profit (EBDITA) 571 593 3.8% 1,872 1,882 0.5%
EBDITA margin (%) 20.7% 18.3%   20.8% 19.4%  
Other income 40 86 115.5% 125 314 151.0%
Interest 0 0 22.7% 1 1 -2.7%
Depreciation 98 105 7.7% 283 312 10.2%
Profit before tax 513 573 11.7% 1,713 1,883 9.9%
Tax 171 178 4.1% 572 593 3.8%
Profit after tax/(loss) 343 396 15.5% 1,141 1,290 13.0%
Minority interest 1 2 67.2% 4 6 28.5%
Net profit/(loss) 341 393 15.3% 1,137 1,285 13.0%
Net profit margin (%) 12.3% 12.1%   12.7% 13.2%  
No. of shares (m)         64.1  
Diluted earnings per share (Rs)*         26.3  
Price to earnings ratio (x)*         7.7  
* On trailing twelve months basis

What has driven performance in 3QCY08?
  • Gujarat Gas sold 262 m standard cubic meters (mmscm) of gas during 3QCY08, up from 259 mmscm in 2QCY07. It maybe noted that the volumes were muted in 2QCY08 due to supply side concerns.

  • Gujarat Gas reported a 33% sales growth in the CNG segment this quarter, with more than 80,000 vehicles now plying on natural gas in the company’s markets.

  • The petroleum ministry has confirmed its authorisation to Gujarat Gas to operate in the cities of Surat, Bharuch and Ankleswar. The company has also filed expression of interest with the regulatory board for certain areas in Kachcch and Bhavnagar. However, the board is expected to follow a competitive bidding process for the authorization of these areas.

  • EBITDA margins during the quarter reduced by 2.4% on the back of higher raw materials cost which increased by 3.5% (as a % of sales) during 3QCY08. However, it was partially offset by a 1.2% decline in other expenditure.

  • 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 during 9mCY08.

  • The company incurred more than Rs 500 m of capital expenditure during the year and continues to explore new sources of gas including that from the Indian east coast.

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 201 at a price to earnings multiple of 6.5 times our CY10E earnings. We hold a favourable view on the company.

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May 26, 2015 (Close)


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