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Gujarat Gas: Challenges continue - Views on News from Equitymaster
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Gujarat Gas: Challenges continue
Nov 7, 2012

Gujarat Gas company Ltd has announced its results for the third quarter of financial year 2012 (3QCY12). The company has reported a 29.0% YoY and 23.6% YoY growth in the topline and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales for the quarter were up 29.0% on a year on year basis (YoY) during the quarter. For the first nine months, the sales registered a growth of 32.7% YoY.
  • Operating profit for the quarter registered a 17.0% YoY growth with margins at 16.5% as compared to 18.0% in 3QCY11. For the first nine months, the operating profits declined by 18.8% YoY with margins at 12.8% as compared to 20.8% for 9mCY11.
  • Net profits for the group grew by 23.6% YoY during the quarter, with margins at 11.9% as compared to 12.3% in 3QCY11.For the first nine months, the net profit were down by 13.0% YoY, with margins at 9.3% as compared to 14.1% in for 9MCY11.
  • The Board of Directors of the company has approved an interim dividend of Rs 7 per share for the current financial year.

Consolidated financial performance snapshot (IFRS)
Rs m 3QCY11 3QCY12 Change 9mCY11 9mCY12 Change
Net Sales 6,435 8,302 29.0% 17,404 23,104 32.7%
Other operating income 98 70 -28.1% 272 234 -13.9%
Total operating income 6,533 8,372 28.2% 17,676 23,338 32.0%
Expenditure 5,354 6,993 30.6% 14,006 20,357 45.3%
Operating profit (EBDITA) 1,179 1,379 17.0% 3,670 2,980 -18.8%
EBDITA margin (%) 18.0% 16.5%   20.8% 12.8%  
Other income 112 193 72.3% 356 569 59.9%
Interest 0 0 8.3% 1 1 15.4%
Depreciation 153 161 5.2% 447 476 6.4%
Profit before tax 1,137 1,411 24.0% 3,578 3,073 -14.1%
Profit before tax margins (%) 17.4% 16.8%   20.2% 13.2%  
Tax 328 410 25.0% 1,080 893 -17.3%
Profit after tax/(loss) 809 1,001 23.7% 2,498 2,180 -12.7%
Net profit margin (%) 12.4% 12.0%   14.1% 9.3%  
Minority share 4 6 34.3% 10 15 53.7%
Profit after tax for the Group 805 995 23.6% 2,488 2,165 -13.0%
Group PAT margins (%) 12.3% 11.9%   14.1% 9.3%  
No. of shares (m)         128.3  
Diluted earnings per share (Rs)*         18.8  
Price to earnings ratio (x)*         16.0  
* On the basis of trailing 12 months earnings

What has driven performance in 3QCY12?
  • The company registered a 29.0% YoY (up 8% QoQ) growth in sales on account of better gas sales realizations and sustained growth in certain market segments. As per the management, more than 7000 households were connected to gas supply during the quarter in the piped natural gas (PNG) segment. In the compressed natural gas (CNG) segment, more than 5400 vehicles were converted to natural gas during the quarter. Volumewise, the gas sales during the quarter stood at 295 million metric standard cubic metre (mscm), as compared to 326 mscm in 3QCY11 (down 9.5% YoY) and 289 mscm in 2QCY12 (up 2.1% QoQ). The average realizations on gas sales stood at Rs 28.1 per scm for the quarter, up 42.6% YoY, up 6.2% QoQ. The growth in the topline for the first nine months stood at 32.7% YoY. The gas sales volumes for the first nine months stood at 887 mscm, as compared to 932 mscm in 9MCY11, down 4.8% YoY. The realizations on gas sales for the nine months stood at Rs 26.0 per scm, up 39.5% YoY.

  • The growth in the operating profits stood at 17.0% YoY for the quarter. This was much lower than the growth at the topline level on account of a 32.7% YoY increase in the gas costs. The operating profit margins for the quarter stood at 16.5% for the quarter, versus 18.0% in 3QCY11 and much better than 10.8% in the previous quarter. The EBITDA per scm for the quarter stood at Rs 4.7, up 29.3% YoY (up 61.2% QoQ). For the first nine months, the operating income declined by 18.8% YoY as gas costs increased to 80.6% (as a percentage of sales, from 71.8% in the 9m CY11). The operating margins for the first nine months stood at 12.8%, down from 20.8% for 9m CY11).The EBITDA per scm for the nine months stood at Rs 3.4 per scm, down 14.7% YoY.

    Cost breakup
    Rs m 3QCY11 3QCY12 Change 9mCY11 9mCY12 Change
    Raw material 4,901 6,504 32.7% 12,695 18,800 48.1%
    as a % of Sales 75.0% 77.7%   71.8% 80.6%  
    Employee expenses 139 156 11.6% 449.41 481.85 7.2%
    as a % of Sales 2.1% 1.9%   2.5% 2.1%  
    Other expenses 314 333 6.0% 862.32 1075.19 24.7%
    as a % of Sales 4.8% 4.0%   4.9% 4.6%  
    Total expenses 5,354 6,993 30.6% 14,006 20,357 45.3%
    as a % of Sales 82.0% 83.5%   79.2% 87.2%  
    * As per IFRS numbers. Excluding inter-segment eliminations and other revenue from Africa

  • Net profits for the group grew by 23.6% YoY during the quarter, with margins at 11.9% as compared to 12.3% in 3QCY11. The other income for the quarter witnessed a growth of 72.3% YoY. For the first nine months, the net profit was down by 13.0% YoY, with margins at 9.3% as compared to 14.1% in for 9MCY11. The other income for first nine months grew by 59.9% YoY.

What to expect?
The constrained gas supply and an unfavorable regulatory scenario are the major concerns for city gas distribution companies. Gujarat gas currently sources around 47% of the gas from imported liquefied natural gas. Under these circumstances, the future of the company is highly uncertain, especially in light of its expansion plans.

At current prices, the stock is trading at a trailing 12 months price to earnings multiple of 16.0x which we believe is high due to the reasons mentioned above. Hence, we suggest our investors to Sell the stock.

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