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Morbi and spot LNG drive volume and margin surge
Gujarat Gas’ (GGL) Q1FY20 EPS was up 92% YoY on surge in volumes and EBITDA margin. Mar’19 National Green Tribunal order banning coal-based gasifiers boosted Q1FY20 Morbi volumes by over 2x to ~5mmsmcmd, industrial volumes to over 7mmscmd, and total volumes to 9.15mmscmd (vs 6.8mmsmcd past peak). Morbi (contracts for ~6.5mmscmd) and total volumes are currently over 5.5-9.5mmscmd. Q1FY20 margin was boosted by plunge in spot LNG price (over 50% of GGL’s LNG mix), but is unsustainable as GGL has cut price for industrial consumers by 8% in Jul’19 and spot LNG price would rise in winter. Upgrade in volume and margin has boosted FY20E-FY21E EPS by 20%-28% respectively and target price by 13% to Rs209/share (27% upside). Reiterate BUY.
* Q1FY20 recurring EPS up 92% YoY: GGL’s Q1FY20 EPS is up 92% YoY, driven by 42% YoY jump in volumes to 9.15mmscmd and 32% YoY surge in EBITDA margin to Rs5.6/scm; margins and volumes are up 29% and 42% QoQ respectively. Volume growth was driven by 57% YoY rise in industrial volumes to 7.08mmscmd. The main driver, Morbi industrial volumes, is up from 2.2mmscmd in Q4FY19 to over 5mmscmd.
* Raise FY20E-FY21E EPS and target price; reiterate BUY: GGL’s Q1FY20 volumes as well as margins are way above our estimate. GGL’s current Morbi and total volumes at over 5.5 mmscmd and 9.5mmscmd respectively are higher than the ~5mmscmd and 9.15mmscmd in Q1. However, Q1 margin is unsustainable given the 8% price cut in Jul’19 and likely spot LNG price rebound in winter. We have raised our FY20E-FY21E volume estimates by 9%-5% to 9.4-10.2mmscmd and EBITDA margin estimate by 9%-8% to Rs4.77-4.90/scm. This has meant upgrade in FY20E and FY21E EPS by 20% and 28% respectively and target price by 13% to Rs209 (27% upside). Reiterate BUY.
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