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Dolat Capital Report
Gujarat Gas Ltd.'s Q2 FY25 Ebitda/ profit after tax came +27%/+31% above our estimates, driven by super-normal gross and Ebitda margins. Volume loss at Morbi led to drop in spot LNG requirement. CNG and PNG-price hike boosted margins. Key Highlights are-
A significant decline in Morbi - PNG (I) volume to 2.9 million metric standard cubic metre per day (45% YoY, -25% QoQ), although there was a partial recovery in Q3 TD. Management's guidance for total volume growth of 5% to 7% in FY25E/FY26E looks challenging due to competitive pricing of propane;
Gujarat Gas will likely take a price hike in CNG and PNG to maintain Ebitda margin guidance of Rs 5 to Rs 6 per scm.
We tweak FY25E/FY26E/FY27E earnings estimates by -5%/-6%/-6% mainly due to changes in the PNG -I volume assumption stemming from the slowdown in Morbi and ongoing challenges from Propane.
As a result, we reduced PNG -I volume assumption by 4%. We maintain our ‘Reduce' recommendation on Gujarat Gas with SOTP- based target price of Rs 531 (earlier Rs 538) for the merged entity and we will keep our model on the existing business until we receive more financial details from the Gujarat State Petroleum Corporation group.
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