PL Stock Report: Gujarat Gas (GUJGA IN) - Q1FY24 Result Update - Sales volume grow sequentially, margin declines - Upgrade to 'Accumulate'

Gujarat Gas (GUJGA IN) - Swarnendu Bhushan – Co-Head of Research, Prabhudas Lilladher Pvt Ltd

Rating: ACCUMULATE | CMP: Rs455 | TP: Rs516

Q1FY24 Result Update - Sales volume grow sequentially, margin declines

Quick Pointers:

♦ Industrial volumes grew 9.7% QoQ to 5.88 mmscmd.

♦ Rise in alternate fuel prices to help the company increase its sales volume.

We upgrade our rating from ‘Hold’ to ‘Accumulate’ given expectation of steady gas prices over rising propane prices, thereby helping the company grow industrial volumes. Gujarat Gas (GGAS) reported weaker than expected results with EBITDA/PAT of Rs 3.9 bn (-31% Q/Q; PLe Rs 4.5 bn)/Rs 2.2 bn (-42% Q/Q; PLe Rs 2.6 bn) respectively, owing to lower realization led by price cuts taken by the company. Fall in APM prices from US$8.57/mmbtu to a ceiling of US$6.5/mmbtu coupled with lower VAT charges (since October 2022) and increase in import duty of propane (since July 2023) will likely help in growing gas sales, going forward. The company also incurred capex of Rs2-2.5 bn in Q1 and guided for further Rs 10-12 bn per annum for next three years to be funded through internal accruals. Upgrade to ‘Accumulate’ with a TP of Rs 516 (previous TP Rs 450) based on 24x P/E FY25E.

♦ Sales volume grows sequentially: Gas sales volume grew 4% QoQ to 9.22 mmscmd driven by industrial volumes which increased 9.7% QoQ due to softer spot LNG prices which the company passed on to the customers. CNG volumes too grew 3.2% QoQ to 2.6 mmscmd. The company witnessed a 28% QoQ decline in domestic PNG volumes to 0.6 mmscmd while commercial PNG volumes declined 7.1% QoQ to 0.13 mmscmd.

♦ Gross Margin impacted: Gross margins for Q1 stood at Rs 8.2/scm which is down 23.1% QoQ due to price cuts taken by the company to maintain competition vis-à-vis propane. Consequently, EBITDA/scm came in at Rs 4.6/scm (-34.2% QoQ).

♦ GGAS acquires stake in GSPC LNG: GGAS announced an equity investment of Rs 100 crores in equity shares of GSPC LNG Ltd. Post-acquisition of equity shares, GGAS will hold a 7.87% stake in the company.

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