“Gujarat Gas Company, GGCL reported results which were broadly inline with our estimates. Top line for the quarter stood at Rs7.2bn, growth of 36.7%YoY, mainly on better realisation led by recent price hike in across the segment. EBITDA during the quarter was at Rs0.8 bn, decline of 30% YoY. During the quarter EBIDTA margin increased by 605bps QoQ and decline of 1005bps YoY to 10.5%, mainly due to high cost of raw material especially spot RLNG. Consequently company reported net profit of Rs.0.65bn, a decrease of 10.4% YoY. Natural gas volume sold during the quarter was 304mmscm, flat on YoY and decline of 3.2% sequentially.”
“Average sales realisation stood at Rs.23.8 /scm, growth of 38.6% YoY and 15% QoQ, led by hike in selling prices of Industrial Retail (from Avg. Rs.22/scm to Rs.24 /scm) and CNG segment (from Rs. 40.25/kg to Rs 43.9/kg). Current selling price of CNG stands at Rs.49.9/kg. During the quarter cost of gas (RM) has increased by 56.2% YoY and 7.6% QoQ to Rs.19.6/scm resulting in gross margin contraction of 9.1% YoY to Rs.4.2/scm, mainly due to depreciation of rupee which impacted the cost of gas. Also gross margin on QOQ has improved from Rs.2.5/scm to Rs.4.2/scm, on the back of hike in selling price across all the segments. However we believe margins would start picking up from Q2 CY12 onwards on the back of recent increase in prices of Industrial and CNG segment and softening in LNG prices currently to $13/mmbtu from $17-18/mmbtu earlier. Based on the agreement with the GSPC Gas Company will transfer its gas distribution assets in Vapi to GSPC gas in exchange for GSPC Gas CNG assets in Bharuch. Also GSPC gas will pay Rs.80-90mn as net consideration. Company has 30km pipeline infrastructure which incurred a total capex of Rs254mn. As of now this asset has negligible contribution towards revenue and profitability front. Overall deal is positive for company as swap of this asset will increase the total area under its operation in Bharuch. The company will take minimum six months to startup the operation in this area after getting the necessary approvals and other arrangement.”
“During the quarter company has faced margin pressure backed by high cost of RLNG, which constitute of almost 35% of the total raw material consumption. However we believe margins would start picking up from Q2 CY12 onwards on the back of recent increase in prices of Industrial and CNG segment and softening in LNG prices currently to $13/mmbtu from $17mmbtu earlier. However the recent news on proposed cap on gas marketing margin which is to be decided by PNGRB would keep the stock under pressure until any clarity emerges. Given the correction in the stock, we change our reco from Accumulate to Buy. Also on the basis of revised estimates we revise our TP to Rs 397, currently the stock trades at 12.3x CY13E EPS and 2.7x P/BV,” says Emkay Global Financial Services research report.
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