Gujarat Gas: Silent performer

Sales growth of Gujarat Gas Co. Ltd. seems to be unhindered by a slowdown in the economy over the past nine months. The company has reported 25% plus growth in the past two quarters of calendar year '01. Gujarat Gas is a private sector player in the gas transmission & distribution business in the state of Gujarat.

(Rs m)	3QFY01	3QFY02	Change	9mFY01	9mFY02	Change
Net Sales	760	957	26.0%	2,162	2,672	23.6%
Other Income	38	42	9.2%	100	117	16.8%
Expenditure	560	712	27.1%	1,543	1,946	26.1%
Operating Profit (EBDIT)	200	245	22.9%	619	726	17.3%
Operating Profit Margin (%)	26.3%	25.6%		28.6%	27.2%
Interest	27	25	-6.3%	81	80	-1.5%
Depreciation	29	27	-5.6%	86	82	-4.6%
Profit before Tax	182	235	28.8%	552	681	23.4%
Tax	54	98	80.1%	151	236	56.1%
Profit after Tax/(Loss)	128	137	7.0%	401	445	11.0%
Net profit margin (%)	16.8%	14.3%		18.5%	16.6%
No. of Shares	12.8	12.8		12.8	12.8
Diluted Earnings per share*	39.8	42.6		41.7	46.3
P/E Ratio		12.1			11.2
*(annualised)

With demand for gas far exceeding supply, the slowdown is not likely to have changed the balance in fundamentals of the industry. Also, the company is primarily a supplier to the industrial & commercial sector in Southern Gujarat and is likely to have entered into long term supply agreements. These factors could have insulated sales from the slowdown.

The rise in operating profits is largely due to continuing strength in sales. However, along with sales, operating costs have also climbed higher and that too at a faster clip. Consequently, operating margins have slipped. The OPM is lower by 70 and 140 basis points for 3QFY02 and 9mFY02 respectively. This is the second consecutive quarter Gujarat Gas is reporting a drop in OPM.

The company, reportedly, has entered into an agreement with Gujarat State Petronet Ltd. (GSPL) to transport 0.5 m metric standard cubic meters per day (mmscmd) of gas, along the HAPi pipeline, starting from the second half of the current fiscal. Another deal, commencing in the same period, has been with Search Chem to supply 0.2 mmscmd of gas. Consequently, robust growth in gas sales could continue this fiscal.

Although the company has built up pipeline capacity there are concerns on gas supply, which has led to operating rates remaining low. As per reports, the company has signed an agreement with Cairns Energy to buy natural gas from the CB-OS/2 block in the Cambay basin, Gujarat. This is a significant booster to the company, as the contract provides for supply of 1.3 mmscmd of gas for a five year period beginning July 1, 2002.

At Rs 517 the scrip is trading on a multiple of 11.2x 9mFY02 annualised earnings. The scrip has been trading at levels of 12x earnings in the current calendar year.