Q4FY23 Review: Gujarat Gas: Beats estimates; set to gain from weak LNG

11 May 2023 , 11:02 AM

In Q4FY23, Gujarat Gas (GGAS) reported a 17% YoY decline in profits but was ahead of estimates, on the back of higher-thanexpected margins (Rs7/scm). Overall, volumes were down by 10% YoY but rebounded sharply QoQ (up 22%), owing to a 75% QoQ rise in Morbi volumes. GGAS has again cut industrial prices in May, which should further help in regaining volumes at Morbi.

Beat on earnings: 

GGAS reported Q4FY23 PAT of Rs3.7bn, down 17% YoY but ahead of estimates. Gross margin/scm and Ebitda/scm at Rs10.6 and Rs7 respectively, listed well ahead of the forecasts. Volumes were marginally below estimates and were 10% down YoY; but improved sequentially (up 22% QoQ) given the Morbi cluster (3.5mmscmd down 27% YoY, up 75% QoQ). Domestic PNG volumes were flat YoY, though CNG volumes were up by 13% YoY. Share of CNG in the overall volumes was at 29% vs 23% YoY. During the quarter, GGAS added 50k D-PNG customers (180k in FY23), 60 CNG stations (102 stations in FY23), and commissioned 400+ I&C PNG customers (1,200+ in FY23).

Bullish outlook: 

GGAS imports LNG to meet its industrial demand volumes (70% sales) via term and short-duration contracts. Benign outlook on LNG prices should result in a sharp uptick in Morbi volumes in FY24. Meanwhile, the continuous network expansion (100+ CNG station additions) and lower APM gas prices should go a long way in further strengthening GGAS reach, resulting in strong growth in CNG volumes. Given the cyclical nature of sales (70% industrials), quarterly margins would be volatile; however, on a full-year basis, we model ~Rs6.3- 6.5/scm Ebitda.

Maintain Forecast; BUY: 

Analysts of IIFL Capital Services maintain their FY24/FY25 PAT forecast, set to register 13% p.a. earnings growth through FY23-FY25 — on the back of robust 22% Cagr growth in volumes; as the company regains volumes at Morbi on the back of low LNG prices.

Analysts of IIFL Capital Services maintain FY24/FY25ii earnings; valuations at 19x/16x FY24ii/FY25ii EPS are undemanding. They maintain buy with target price of Rs 580.