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Systematix Research Report
Gujarat Gas Ltd.'s Q2 FY24 results were better than our expectations on the back of better-than-expected margins. Ebitda increased 28% QoQ (-23% YoY) to Rs 49.6 billion which translated to a profit after tax of Rs 29.8 billion, up 38% QoQ (-26% YoY) led by lower gas cost and operating expenses.
Volume increased a meager 1% QoQ to 9.3 million metric standard cubic metre per day (our estimate: 9.4 mmscmd) as industrial piped natural gas/compressed natural gas volume continued to remain flattish at 5.8 mmscmd/2.6 mmscmd due to competition from propane and higher prices.
However, DPNG/ CPNG volume increased 17%/8% QoQ to 0.14/0.7 mmscmd. Gas cost/opex cost declined by 5%/4% respectively resulting in a 24% jump in Ebitda/standard cubic metre.
At Morbi, the recent rise in propane prices has led to a price hike in IPNG but propane continues to remain competitive. A lower high pressure-high temperature price would benefit the margin but a higher spot LNG price and threat from propane would continue to hurt margins.
The company is focusing more on the CNG business and would be investing one-third of its total capex of Rs 10-12 billion on creating CNG infrastructure in new grographical areas.
Gujarat Gas maintains an Ebitda margin guidance of Rs 4.5-5.5/scm. We keep our estimates unchanged and forecast lower FY24E/FY25E Ebitda of Rs 18/22.5 billion versus FY23 levels of Rs 24 billion.
We have forecasted a volume of 9.4/10.5 mmscmd for FY24E/FY25 with Ebitda/scm of Rs 5.1/5.8.
Our earnings per share expectation is lower by 11%/10% compared to consensus EPS estimates for FY24E/FY25E.
We still believe the recent rise in propane price has given some comfort in the near term but volatility in LNG prices would keep pressure on IPNG margins and the stock is still trading expensive at 21 times on FY25E.
We cut our target price to Rs 366 based on price-to-earnings ratio of 18 times (earlier 19 times) on FY25E as the risk of enterprise value would also hit its CNG business in the long run.
We maintain 'Sell' on the stock. Key risk: a significant change in LNG and propane prices.
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