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Gujarat Gas: Topline drives growth - Views on News from Equitymaster

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Gujarat Gas: Topline drives growth
Nov 2, 2010

Gujarat Gas has announced its September quarter results. The company has reported a 31% growth in topline and a 27% growth in bottomline on a YoY basis. Here is our analysis of the results.

Performance summary
  • Topline grows by 31% YoY during the quarter, led by both higher volumes as well as realisations.
  • Contraction in operating margins leads to a 27% growth in operating profits.
  • There is no further damage to profitability as bottomline growth also comes in at 27% YoY during the quarter
  • A 37% YoY growth in profits is witnessed for the nine month period, led by 29% YoY growth in topline

(Rs m) 3QCY09 3QCY10 Change 9mCY09 9mCY10 Change
Net sales 3,879 5,071 30.7% 10,335 13,358 29.25%
Expenditure 3,170 4,168 31.5% 8,309 10,495 26.3%
Operating profit (EBDITA) 709 903 27.3% 2,026 2,863 41.3%
EBDITA margin (%) 18.3% 17.8%   19.6% 21.4%  
Other income   61   50 -18.9%  203 147 -27.9%
Interest (net) 0 0 16.1%   1 4 323.9%
Depreciation 121 138 13.8%  347 400 15.3%
Profit before tax 650 815 25.5% 1,882 2,606  
Extraordinary income/(expense)    -       -   -    
Tax 203 250 22.9%  594 841 41.5%
Profit after tax/(loss) from ord. activity 446 565 26.7% 1,288 1,765 37.1%
Share of minority interest     2     1 -34.0%   6     9  
Profit/(Loss) from inv. in ass. Cos    -      -     -      -    
Profit after tax/(loss) 444 564 27.0% 1,282 1,756 37.0%
Net profit margin (%) 11.4% 11.1%   12.4% 13.1%  
No. of shares (m) 128.3 128.3   128.3 128.3  
Diluted earnings per share (Rs)*            17.3  
Price to earnings ratio (x)*         22.3  
(* on trailing twelve months earnings)

What has driven performance in 3QCY10?
  • Gujarat Gas has reported a 31% YoY growth in topline during the quarter. The same seems to have been driven by both higher volumes as well as realisations. As per the company, gas sales volumes increased by 12% YoY. The total volumes of gas sold during the quarter was 315 mmscm compared to 281 mmscm during the same quarter last year. It should be noted that more than 6,800 CNG vehicles were added during the quarter, taking the total number of CNG vehicles in the company’s operational areas to more than 126,000. The company continues to remain India’s largest private sector gas distribution company in terms of sales volume. Besides, it is assessing some of the new areas opened for bidding by the PNGRB in the third round.

    Cost break-up...
    (Rs m) 3QCY09 3QCY10 Change 9mCY09 9mCY10 Change
    Raw materials 2,835 3,806 34.3% 7,355 9,483 28.9%
    % sales 73.1% 75.1%   71.2% 71.0%  
    Staff cost 123 130 5.7% 333 358 7.3%
    % sales 3.2% 2.6%   3.2% 2.7%  
    Other expenditure 212 231 9.0% 621 655 5.5%
    % sales 5.5% 4.6%   6.0% 4.9%  

  • As far as margins are concerned, the same came in lower by around 50 basis points during the quarter. This was mainly on account of higher raw material costs, which moved up by 34% YoY on an absolute basis and by 2% as a percentage of sales. Higher raw material costs seemed a consequence of a change in the sourcing mix of the company as Regassified LNG (RLNG) became a significant portion of the sourcing portfolio of the company. Had it not been for lower staff costs as well as lower other expenditure as a percentage of sales, the fall in operating margins could have been even worse.

  • While the other income has come in lower by 19% YoY, better economies of scale and lower tax outgo ensured that there was no further damage to profitability and consequently, bottomline growth remained at 27% YoY.

What to expect?
At the current price of Rs 385, the stock trades at around 21 times its expected CY12 earnings per share (Research Pro subscribers, click here.) The company’s performance has come in better than our expectations. We will come out with an updated report on the company soon.

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