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Gujarat Gas: A disappointing performance - Views on News from Equitymaster
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Gujarat Gas: A disappointing performance
Nov 18, 2014

Gujarat Gas Company Ltd has announced its results for the quarter ended September 2014. During the quarter, the company has reported 18.4% year on year (YoY) decline in the net sales while net profits for the quarter declined 35.1% YoY.

Performance summary
  • Net sales for the quarter declined by 18.4% on a year on year basis (YoY). For the half year, topline declined by 13.7% YoY.
  • Operating profit for the quarter declined 41.3% YoY with margins at 16.2%, down from 22.6% in the corresponding quarter last year. For half year, the operating profits declined 30.1% YoY with margins at 17.6% versus 21.8% in 1HFY14.
  • Net profits for the group declined 35.1% YoY during the quarter, with margins at 11.4%, down from 14.4% in 2QFY14. For half year, the net profits declined 20.6% YoY with net profit margins at 12.8%, down from 13.9%.
  • 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.

(Rs m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Net Sales 8,283 6,761 -18.4% 15,751 13,590 -13.7%
Other operating income 36 49 35.1% 81 100 23.0%
Total operating income 8,319 6,810 -18.1% 15,832 13,690 -13.5%
Expenditure 6,449 5,712 -11.4% 12,406 11,297 -8.9%
Operating profit (EBDITA) 1,870 1,098 -41.3% 3,426 2,394 -30.1%
EBDITA margin (%) 22.6% 16.2%   21.8% 17.6%  
Other income 105 182 72.4% 234 437 87.1%
Interest 1 1 0.0% 1 1 0.0%
Depreciation 192 161 -16.2% 382 312 -18.3%
Profit before tax 1,783 1,118 -37.3% 3,277 2,518 -23.2%
Profit before tax margins (%) 21.5% 16.5%   20.8% 18.5%  
Tax 590 345 -41.5% 1078 774 -28.2%
Profit after tax/(loss) 1,193 773 -35.2% 2,199 1,743 -20.7%
Net profit margin (%) 14.4% 11.4%   14.0% 12.8%  
Minority share 2.2 0.2 -90.9% 4.8 1 -79.2%
Profit after tax for the Group 1,191 772 -35.1% 2,194 1,742 -20.6%
Group PAT margins (%) 14.4% 11.4%   13.9% 12.8%  
No. of shares (m)         128  
Diluted earnings per share (Rs)*         24.5  
Price to earnings ratio (x)*         19.4  
*On a trailing 12 months basis

What has driven performance in 2QFY15?
  • Sales for the quarter declined due to muted volumes on account of low demand from industrial segment and higher dependence on costlier LNG. The realizations also declined sequentially and were marginally lower on a YoY basis as well.
    Cost breakup
    (Rs m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
    Raw material cost 5,956 5,170 -13.2% 11,376 10,281 -9.6%
    as a % of sales 71.9% 76.5%   72.2% 75.6%  
    Staff expenses 144 153 6.5% 323 306 -5.1%
    as a % of sales 1.7% 2.3%   2.0% 2.3%  
    Other expenses 349 388 11.3% 708 710 0.3%
    as a % of sales 4.2% 5.7%   4.5% 5.2%  
    Total expenses 6,449 5,712 -11.4% 12,406 11,297 -8.9%
    as a % of sales 77.9% 84.5%   78.8% 83.1%  

  • The operating margins for the quarter declined to 16.2% from 22.6% on account of increase in gas cost , staff expenses and other expenses (all as a % of sales).

  • The net profits for the quarter were down 35.1% on account of a weak operating performance. However, the decline was arrested to some extent due to lower effective tax rate and 72% YoY increase in the other income.
What to expect?
Both volume and realisations were disappointing for Gujarat Gas in the quarter ended September 2014. The company was not able to pass on high LNG costs to customers . We expect volume concerns to remain in the near to medium term. At current stock price, Gujarat Gas is trading at a trailing 12 months price to earnings ratio (PE) of around 19 times. We recommend investors not to Buy the stock at current prices.

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