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Record EBITDA/scm with volumes lower than our estimate

* Total volumes came in lower-than-expected at 7.6mmscmd, with Morbi volumes at 2.7mmscmd, impacted by the shutdown of ceramic units of over a month in 2QFY23. EBITDA margin was in line at INR9.2/scm (our estimate of INR9/scm).

* Current sales stand at 8mmscmd. LPG consumption at Morbi stood at 0.8- 1mmscmd, with a discount of INR6/scm v/s gas. Propane consumption at Morbi stood ~2.5mmscmd, which is currently at a discount of INR12-13/scm.

* Spot LNG prices in 3QFY23 till date have fallen to USD28.9/mmBtu v/s USD45/mmBtu in 2Q. A further cooling of these prices will result in a volume recovery. We estimate an EBITDA/scm of INR7.1/INR6 in FY23/FY24 v/s INR5.3 in FY22.

* With volumes remaining weaker than expected in 2QFY23, we lower our FY23/FY24 volume assumption to 8.5mmscmd/10.7mmscmd from 9.4mmscmd/11.2mmscmd. Subsequently, we reduce our FY23 revenue/ EBITDA/EPS estimate by 10%/5%/6%. Our estimates for FY24 largely remain unchanged.

* The company’s long-term volume growth prospects remain robust with the addition of new industrial units, expansion of existing units, and the emergence of a new ceramic cluster at Aniyari (potential of ~0.5mmscmd). The Supreme Court order in favor of the company for Ahmedabad rural presents prospects of 0.8-1.2mmscmd over the next two-to-three years.

* We maintain our Buy rating on the stock, with a TP of INR583 (at 28x FY24E EPS). Any underperformance in terms of EBITDA/scm or volume growth v/s our projection can pose a key risk to GUJGA.

Miss on absolute numbers; EBITDA/scm in line

* Total volumes stood at 7.6mmscmd (est. 8.3mmscmd) in 2QFY23, adversely impacted by the shutdown in tiles and ceramic units. Sales currently stand at 8mmscmd.

* CNG volumes stood at 2.32mmscmd (up 18% YoY, but down 5% QoQ). PNG I/C volumes stood at 4.61mmscmd (down 48% YoY and 32% QoQ). Volumes at Morbi stood at 2.7mmscmd in 2QFY23. PNG domestic volumes stood at 0.69mmscmd.

* EBITDA/scm stood in line at INR9.2 v/s INR6.8 in 1QFY23. Gross margin stood at INR13/scm (up from INR9.8 in 1QFY23). EBITDA grew 53% YoY and 6% QoQ to INR6.4b (est. INR6.8b). PAT grew 65% YoY and 6% QoQ to INR4b (est. INR4.4b).

* In 1HFY23, EBITDA rose 9% YoY to INR12.5b, with PAT up 9% at INR7.9b. EBITDA/scm stood at INR8 v/s INR6 in 1HFY22. Total volumes fell 19% YoY to 8.7mmscmd. CNG volumes rose 36% YoY to 2.4mmscmd. PNG I/C volumes fell 32% YoY to 5.7mmscmd. PNG domestic volumes were flat YoY at 0.6mmscmd.

* GUJGA has signed volumes of ~5,60,000scmd and is in the process of commissioning the same at the end of Sep’22.

* It has fully prepaid its outstanding long-term loan in Sep’22.

* It has also signed a MoU with Tata Power to initially install EV charging facilities at its CNG stations on a pilot basis.

Valuation and view

* In 2QFY23, the company added ~45,400 new domestic customers, 20 CNG stations, 257 commercial customers, and 61 new industrial customers.

* The transfer of the Amritsar and Bhatinda GAs to GUJGA from GSPL has been completed in Nov’21 (for INR1.54b). Bhatinda offers a huge potential for industrial gas consumption.

* GUJGA has a RoCE profile of 25-38%. We expect a FCF generation of ~INR17b over FY23-24. The company is likely to turn net cash in FY23, despite capex plans of INR20b over FY23-24. We maintain our Buy valuing on the stock to arrive at our TP of INR583 (at 28x FY24E EPS).

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