IDEA2ACT - Buy: Gujarat Gas Limited


CMP (NSE) 15:58, 03 Aug

764.00 9.41.25%




Oil & Gas

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Last updated on

02 Jun, 2021

Gujarat Gas Limited (GGL) was formed in FY15 by amalgamating Gujarat Gas Company Ltd. and GSPC Gas Ltd. It has emerged as India's largest city gas distribution player with a total sales volume of 9.4mmscmd in FY20 and presence spread across 23 districts in the State of Gujarat, Maharashtra and Union Territory of Dadra Nagar Haveli. It has a network of 15000 km-long gas pipeline and 396 CNG stations constituting 17% of all CNG stations in the country. Within promoters- GSPL holds 54% and Gujarat Govt holds 6.5% in the company. 

Beat on earnings: GGAS reported 4QFY21 PAT of Rs3.5bn up 42% YoY, EBITDA grew by 27% YoY. In 4Q, volumes grew 22% YoY led largely by the industrial segment, where sales volumes were up 24% YoY. Morbi cluster volumes averaged at 7.3mmscmd, up 33% YoY, despite the pandemic, and remained a key driver of the volume growth. CNG sales were up 16% YoY, driven by beefing up CNG infrastructure and greater personal vehicle consumption, despite school buses, autos, taxies operating well below normal levels. Net realization rose 17% QoQ as the company raised prices for industrial customers (to pass on higher spot LNG prices) in January; ebitda/scm was Rs5.1 vs Rs4.8 YoY reflecting the benefits of gas sourcing. Repayment of debt has led to 57% YoY fall in interest outgo. Share of industrial sales were 80%, vs 79% YoY and 81% QoQ.

Valuation Metrics: Despite a strong run-up in the stock price, GGas is currently trading at 22x FY22ii, in line with its historical average. We expect the stock to double its free cash flow during Fy22ii-Fy23ii led by a strong operating performance. At a ROCE/ROE of 35%/32% in Fy22ii, we expect GGas to continue it outperformance. We recommend a Buy rating on the stock with a target of Rs 674.

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