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Subdued volumes although to be better in coming years

* GUJGA’s total volumes came in line with our estimate of 7.3mmscmd; Morbi volumes stood at 2mmscmd with the current volumes also at similar levels. EBITDA margin was better than expected at INR8.7/scm (our estimate of INR5/scm). Total consumption at Morbi across all fuels stands at 5.5- 6mmscmd, suggesting a weak ceramic market. LPG prices are at a premium of INR1/scm (expected to rise further in Mar’23), compared to gas currently. While Propane is trading at a discount of INR2/scm, its prices are likely to rise going forward.

* Spot LNG prices continue to fall to USD17/mmBtu for Mar’23 delivery from USD29.7/mmBtu in 3QFY23. A further cooling of these prices is expected to result in a volume recovery. We estimate an EBITDA/scm of INR7.7/INR6.2/INR6.2 in FY23/FY24/FY25, respectively, v/s INR5.3 in FY22.

* 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.

* While we raise our EBITDA/EPS estimates by 9%/11%, respectively, for FY23 due to the beat in our estimates, the subdued performance in volumes warrants a cut in our revenue/EBITDA/EPS estimates by 14%/9%/9%, respectively, for FY24 and by 12%/8%/10%, respectively, for FY25.

* We reiterate our Buy rating on the stock, with a TP of INR610 (at 28x Dec’24E EPS). A continued poor ceramic outlook or a sustained discount of propane/LPG to natural gas can pose a key risk to GUJGA.

Total volumes in line with EBITDA/scm better than expected

* Total volumes stood at 7.3mmscmd (est. of 7.4mmscmd) in 3QFY23.

* CNG volumes stood at 2.43mmscmd (up 12% YoY). In 3QFY23, it added 12 new CNG stations. PNG I/C volumes were at 4.19mmscmd (down 51% YoY) with PNG domestic volumes at 0.67mmscmd.

* EBITDA/scm came in at INR8.7 (est. of INR5 and INR2.3 in 3QFY23). Gross margin stood at INR12.8/scm (up from INR4.6 in 3QFY22). EBITDA stood at INR5.8b (est. of INR3.5b, up 145% YoY) with PAT at INR3.7b (est. of INR1.9b, up 204% YoY).

* For 9MFY23, EBITDA was up 33% YoY to INR18.3b, with PAT at INR11.6b (up 37% YoY). EBITDA/scm stood at INR8.2 v/s INR4.7 in 9MFY22. Total volumes were down 25% YoY to 8.2mmscmd. CNG volumes were up 27% YoY to 2.4mmscmd with PNG I/C volumes down 38% YoY to 5.2mmscmd. PNG domestic volumes were flat YoY at 0.6mmscmd.

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