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Gujarat Gas 4QCY2012 performance highlights and results update

Contributed by Angel Broking

Gujarat Gas (GGAS) reported a strong growth in operating profit on account of higher realizations during 4QCY2012. However, given the regulatory overhang on the stock, we recommend Neutral rating on the stock. Top-line growth of 17.1% yoy driven by higher realization: The company’s top-line increased by 17.1% yoy to Rs.762cr on account of higher realization, partially offset by declining volumes. Average sales realization grew by 37.1% yoy to Rs.28.0/scm; however, natural gas sales volumes fell 14.0% yoy to 270mmscm.

Lower expenses boosts EBITDA: The company’s cost of goods sold increased by 5.9% yoy to Rs.604cr on account of higher proportion of expensive RLNG sales. However the staff costs and other expenses declined 0.6% and 7.1% yoy to Rs.16cr and Rs.33cr respectively. Hence, the EBITDA grew by 266.6% yoy to Rs.110cr. and net profit increased by 181.9% yoy to Rs.70cr.

Outlook and valuation: The company’s volumes have declined gradually during the past one year on account of higher price of spot LNG and lower production from the KG D6 block. Going forward, we believe that high price of LNG will continue to impact the volume growth of the company. Further, the recent proposal to cap gas marketing margin by PNGRB remains an overhang on the stock. At current levels, the stock is trading at 12.2x and 11.3x CY2013E and CY2014E earnings, respectively. Given the regulatory overhang, we maintain our Neutral rating on the stock.