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November 3, 2011
Gujarat Gas
Performance Highlights
Y/E Dec. (` cr) Net operating income EBITDA EBITDA margin (%) Adj. PAT
Source: Company, Angel Research
NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Oil & Gas 5,690 0.5 463/310 10583 2 17,482 5,266 GGAS.BO GUJS@IN
507 90 17.8 56 28.7 30.4 23bp 41.5 585 140 24.0 96 11.6 (16.1) (594)bp (16.9)
`444 -
3QCY11 3QCY10 % chg (yoy) 2QCY11 % chg (qoq) 653 118 18.0 80
For 3QCY2011, Gujarat Gas (GGAS) reported a good performance on the revenue, EBITDA and PAT front. Growth during the quarter was led by higher realization. We remain Neutral on the stock. Higher realization drives top-line growth: For 3QCY2011, GGAS reported top-line growth of 28.7% yoy to `653cr mainly on account of higher realization. Average sales realization stood at `19.7/scm (up 24.7% yoy), driven by hike in selling prices of the industrial retail and CNG segments. Other income boosts net profit growth: Cost of goods sold during the quarter increased by 28.8% yoy to `490cr on account of higher proportion of expensive RLNG sales coupled with INR depreciation against the USD. Hence, the companys EBITDA grew by 30.4% yoy (in-line with net sales growth) to `118cr. Other income during the quarter grew by 100.9% yoy to `10cr. Consequently, the companys net profit grew by 41.5% yoy to `80cr. Outlook and valuation: GGAS still awaits authorization from PNGRB for its areas of operations. However, to pursue growth, the company has bid for a new area within Gujarat under the third round of bidding conducted by PNGRB. Besides volume growth, to maintain margins, the company plans to price its gas as per the pricing of alternative fuels. At current levels, the stock is trading at 17.8x and 15.9x CY2011E and CY2012E earnings, respectively. We believe the stock is fairly valued at current levels and, hence, maintain our Neutral stance on the stock. Key financials (Consolidated)
Y/E Dec. (` cr) Net sales % chg Net profit % chg OPM (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 65.1 7.6 16.1 11.2
3m 8.1
1yr 14.7
(2.6) (14.6)
CY2009 1,420 9.1 174 8.4 19.7 13.6 32.7 7.4 23.6 24.4 3.7 18.8
CY2010 1,849 30.3 258 48.0 22.5 20.1 22.1 6.7 32.0 33.8 2.8 12.3
CY2011E 2,472 33.7 319 23.9 19.3 24.9 17.8 5.6 34.4 34.2 2.1 10.7
CY2012E 2,908 17.7 359 12.4 18.6 28.0 15.9 4.7 32.1 33.6 1.7 9.1
Bhavesh Chauhan
Tel: 022- 3935 7800 Ext: 6821 bhaveshu.chauhan@angelbroking.com
3QCY11 3QCY10 % chg (yoy) 2QCY11 % chg (qoq) 653 490 535 118 18.0 10 15 0 113 17.2 33 28.9 80 80 12.2 507 381 417 90 17.8 5 14 0 82 16.1 25 30.7 57 56 11.1 41.7 127.9 41.5 30.0 100.9 10.0 0.0 38.1 28.7 28.8 28.4 30.4 585 399 445 140 24.0 14 15 0 139 23.8 43 30.9 96 96 16.4 (16.8) (16.9) (24.6) (29.9) 1.8 (89.4) (19.2) 11.6 22.7 20.3 (16.1)
Top-line growth of 28.7% yoy driven by higher realization: The companys top line
increased by 28.7% yoy to `653cr mainly on account of higher realization. Average sales realization grew by 24.7% yoy to `19.7/scm, led by hike in selling prices of the industrial retail and CNG segments. Natural gas volume sold grew by 3.5% yoy to 326mmscm during the quarter.
(mmscm)
13.5
290 280 270 1QCY10 3QCY10 Gas volumes 1QCY11 3QCY11 Avg realisation (RHS)
10.0
November 3, 2011
(%)
300
13.8
(` cr)
16.5
(`/scm
400
Other income boosts net profit growth: Cost of goods sold during the quarter increased
by 28.8% yoy to `490cr on account of higher proportion of expensive RLNG sales coupled with INR depreciation against the USD. Hence, EBITDA grew by 30.4% yoy (in-line with net sales growth) to `118cr. Other income grew by 100.9% yoy to `10cr. Consequently, the companys net profit grew by 41.5% yoy to `80cr.
(`/scm)
(` cr)
60 40 20 -
19.0
(` cr)
60 40 20 -
November 3, 2011
(%)
(%)
80
21.0
Investment arguments
RLNG to drive volume growth: Over the past one year, there have been some delays in receiving gas from KG-D6 on account of declining gas production. The company is ensuring that the shortfall in volume is compensated by higher RLNG procurement. The company re-entered into a firm RLNG agreement with BG for total supply of 1.1mmscmd. The company continues to explore such long-term RLNG contracts. Moreover, increased availability of domestic gas (RIL, along with BP, ramping up production from KG-D6 beyond 45mmscmd) would improve matters further. Gross spread to stabilize: The company's profitability has been improving with its focus shifting to the high-margin retail business from bulk customers. Going ahead, we expect gross gas spread to stabilize at the current level as the company is able to pass through its gas cost to customers by proactively pricing it, taking into account the pricing of alternative fuels. Outlook and valuation GGAS still awaits authorization from PNGRB for its areas of operations. However, to pursue growth, the company has bid for a new area within Gujarat under the third round of bidding conducted by PNGRB. Besides volume growth, to maintain margins, the company plans to price its gas as per the pricing of alternative fuels. We believe, through this strategy, the company will be able to maintain its volume growth and margins going ahead. At current levels, the stock is trading at 17.8x and 15.9x CY2011E and CY2012E earnings, respectively. We believe the stock is fairly valued at current levels and, hence, maintain our Neutral recommendation on the stock.
24.9 28.0
November 3, 2011
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
7x
Source: Company, Angel Research
10x
13x
16x
19x
Source: Angel Research; Note: For GGAS* FY12E = CY11E and FY13E = CY12E
November 3, 2011
Oct-11
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Apr-08
Apr-09
Apr-10
Apr-11
Apr-06
Apr-07
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
November 3, 2011
November 3, 2011
November 3, 2011
Key ratios
Y/E December Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) Working capital cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT/Interest) (0.4) (1.0) (0.5) (1.6) (0.6) (1.5) (0.7) (1.3) (0.6) (1.2) 463.4 (0.6) (1.4) 472.7 1.9 5 25 66 (24) 1.8 5 26 63 (24) 1.7 5 27 62 (34) 1.9 4 25 48 (39) 2.3 4 26 49 (30) 2.4 5 29 59 (24) 31.7 39.0 30.2 23.4 28.3 25.1 24.4 29.0 23.6 33.8 39.0 32.0 34.2 39.9 34.4 33.6 42.7 32.1 17.1 67.1 1.9 21.8 21.8 14.9 69.3 1.6 16.6 16.6 16.4 67.7 1.5 16.8 16.8 19.5 67.6 1.7 23.1 23.1 16.9 69.3 2.1 24.3 24.3 16.3 69.3 2.3 25.7 25.7 11.9 11.9 14.9 1.5 44.5 12.5 12.5 15.8 1.5 55.3 13.6 13.6 17.3 8.0 59.7 20.1 20.1 24.3 12.0 65.9 24.9 24.9 29.6 10.0 79.0 28.0 28.0 33.2 10.0 95.2 37.2 29.7 10.0 0.3 2.1 10.3 3.5 35.4 28.1 8.0 0.3 1.9 10.5 2.7 32.7 25.7 7.4 1.8 3.7 18.8 5.3 22.1 18.2 6.7 2.7 2.8 12.3 4.5 17.8 15.0 5.6 2.3 2.1 10.7 3.9 15.9 13.4 4.7 2.3 1.7 9.1 3.2 CY07 CY08 CY09 CY10 CY11E CY12E
November 3, 2011
E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Gujarat Gas No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns):
November 3, 2011
10