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Result Highlights‐ In line with estimates  

* 4QFY21 Profitability:

The Operating profit and PAT for the quarter stood at Rs 3.4bn (‐3.2% YoY; ‐13.6% QoQ) and Rs 2.1bn (‐8% YoY; ‐16% QoQ), respectively, broadly in line with our estimates. The YoY and QoQ drop in profitability was primarily on account of reduction in gas throughput as consumption dropped across segments (other than CGD).  

* 4QFY21 Gas Sales:

Total gas throughput stood lower by 8% YoY and 14% QoQ at 33.8mmscmd as consumption dropped across segments viz. Refinery (‐30% YoY; +5% QoQ), Fertilizer (‐17% YoY; ‐23% QoQ) and Power (‐14%YoY; ‐47% QoQ), other than CGD where consumption improved (+23% ; +7.5% QoQ). Sharp increase in LNG prices was the primary reason for drop in consumption.  

* FY21 Profitability:

The FY21 operating profit and PAT at Rs 14.7bn and Rs 9.3bn, respectively, stood lower by 7% YoY and 16% YoY, respectively. The YoY reduction in profitability was primarily on account of 3% YoY lower gas throughput at 36.6mmscmd and 9% YoY lower tariff at Rs 1.5/scm.

* FY21 Gas sales:

While the annual volumes stood lower for CGD at 10.4mmscmd (‐3% YoY), Refinery at 8.9mmscmd (‐27% YoY) and Fertilizer at 3.2mmscmd (‐19% YoY) segments, the same was offset by 49% YoY higher consumption in Power segment at 8.3mmscmd and 12% YoY higher in others at 5.6mmscmd.  

* Per unit metrics:

The per unit revenue for the quarter as well as FY21 stood lower at 1.5/scm (‐14% YoY,  ‐4.3%QoQ) and Rs 1.5/scm (‐9% YoY), respectively. The key reason for drop was shift in volumes to lower tariff LP system.  

* Debt:

The gross debt for FY21 increased to Rs 7.5bn (FY20: Rs 5.4bn) on account increase in current borrowing to Rs 4.3bn (FY20: Nil), even as non‐current borrowing reduced to Rs 3.25bn (FY20: 5.4bn).  

* Discontinued Operation:

GUJS has classified its CGD business in Amritsar and Bhatinda as discontinued operation and transferred the same to its subsidiary Gujarat Gas Ltd for a consideration of Rs 16.3bn, on slump sale basis.  

* Dividend:

GUJGA declared a dividend of Rs 2/sh for the year FY21.   

View & Valuation

GUJS’ reported earnings in 4QFY21 stood in‐line with estimates, on account of anticipated drop in gas throughput. The gas throughput remains impacted in 1QFY22 as well, as Covid 2nd wave impacts demand. CGD segment is the most impacted, with ~ 30% QoQ erosion in demand, along with the Power segment (QoQ decline of 30‐ 40%), where higher LNG prices have impacted offtake. However going ahead, improvement is expected, as demand picks up at least from CGD sector. We accordingly adjust our earnings estimate for FY22e and FY23e to reflect the same.   

We maintain our BUY rating on GUJS, with a TP of Rs 345/sh, as we believe that at CMP the standalone business is avalilaible at a ~50% discount to fair‐value, given that the valuation of GUJS’ subsdiary GUJGA has increased by 117% over last one year. Our SOTP valuation of Rs 345/sh involves a)  valuing the standalone business at Rs 119/sh, implying a P/E of 8x FY23e (SA), b) the investment in GUJGA at Rs 211/sh valued  at 40% discount to 3M average market price, c) investment in Sabarmati gas at 3.0x FY20 BV and d) investment in under‐construction trunk pipelines GIGL & GITL at 30% discount to FY20BV

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