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High gas prices weigh on earnings

Our view

The 1QFY23 reported Ebitda at Rs 6.07bn (-16% YoY; -13% QoQ), stood in-line with our estimates, but above consensus. The YoY and QoQ drop in operating profits stemmed primarily from a) moderation in gas sales to 9.75mmscmd (-3% YoY; -1% QoQ) and b) increase in blended gas costs to USD 17.4/mmbtu (+104% YoY; +13% QoQ). The gas sales in 1Q was comparatively tepid as GUJGA continued to optimize sales in early part of the quarter to reduce dependence on higher priced shortterm/spot cargoes. However, in latter part even as GUJGA normalized sales, softer propane (alternate fuel) prices, led to switching of some demand, specially in Morbi. During the 1Q, while spot LNG prices softened QoQ to ~USD 27/mmbtu (4Q: USD 31/mmbtu) on an average, the domestic APM and term LNG (Brent linked) increased leading to an overall increase in gas cost. However GUJGA undertook price interventions (both increase and decrease) during the quarter to optimize sales and margins, leading to a QoQ lower but healthy Ebitda/unit of Rs 6.8/scm. Maintain BUY

Result Highlights

? 1QFY23 Profitability: The Operating profit and PAT for the quarter stood at Rs 6.1bn (-16%YoY; -13% QoQ) and Rs 3.81bn (-20% YoY & -14% QoQ), in-line with our estimates. Profitability though tad weaker on sequential basis, but nevertheless was still on the healthier side, as GUJGA navigated the high gas price environment with prudent sales optimization and price intervention

? Per unit margins: The Gross spread and EBITDA per unit stood in-line at Rs 9.8/scm (4QFY22: 10.7/scm) and Rs 6.84/scm (4QFY22: 7.84/scm). Sales optimization, price intervention coupled with moderation in global LNG prices, helped maintain margins, even as domestic APM and term LNG prices increased QoQ. GUJGA utilized the moderation in global spot LNG prices to tie up supply for most of its FY23 requirement.

? Gas Sales: Total gas sales stood QoQ & YoY lower at 9.75mmscmd (-3% YoY; -1% QoQ); with Industrial sales at 6.63mmsmcd (-15% YoY; -1% QoQ); CNG: 2.44mmsmcd (+57% YoY+9% QoQ) ; PNG Domestic: 0.55mmscmd (-7% YoY; - 33% QoQ) and PNG commercial at 0.13mmscmd (+48% YoY; -7% QoQ). Gas sales stood lower on supply optimization coupled with some demand shift to propane.

? Infrastructure & operational developments: During 1QFY23 GUJGA added a) 35000 new domestic customers, b) 131 commercial and 63 industrial consumers and c) commissioned 10 new CNG stations. GUJGA also signed up an incremental 0.7mmscmd of yet to be commissioned volume.

Valuation

We value GUJGA at Rs 630/sh (Mar’23) on DCF basis, were we estimate an earnings CAGR of ~15% (FY22-30e) backed by a volume growth of ~10% CAGR (FY22 -30e).

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