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Lower demand for LNG impacts throughput  

Our view

The 4QFY22 operating profit at Rs 3.06bn (‐11% YoY; ‐9% QoQ), stood above our but below street estimates.    High LNG price environment during the quarter impacted consumption in Power, Steel and CGD sectors thereby leading to a 8.3% sequential drop in GUJS’ throughout.    ‘Ship or Pay’ clauses ensured, stability in profitability to some extent, as Ebitda per unit clocked in at Rs 1.2/scm (+2.8% YoY; +1.5% QoQ), even as gas throughput declined. Going ahead, throughput is expected to improve, as demand recovers with cooling‐off of LNG prices. The throughput has already recovered to ~32 mmscmd (4Q: 29.3), as Asian LNG price for June’22 delivery is now estimated lower at ~ USD 23.5/mmbtu (4Q avg: USD 31/mmbtu). In addition, commissioning of Mehsana‐Bhatinda pipeline (expected soon) would lead to additional ~4‐5mmscmd flowing through GUJS’s network, when its throughput reaches ~ 9‐10mmscmd by May’23. GUJS’s tariff revision on account of change in tax regime and higher utilization (than rated capacity) is impending and expected soon from the regulator.

Result Highlights

* 4QFY22 Profitability:  Reported EBITDA and PAT stood at Rs 3.06bn (‐11% YoY; ‐9% QoQ) and Rs 2.02bn (‐2.8% YoY;  ‐5.3% QoQ). The weakness in earnings stemmed from drop in gas throughput due to lower demand from Power, Steel, and CGD sectors on account of high LNG prices.

* Gas sales: The total gas throughput at 29.3mmscmd stood lower by 13.5% YoY and 8.3% QoQ as high LNG prices impacted demand. The segment wise sales stood as follows : CGD :11.3mmscmd (‐16% YoY;  ‐13% QoQ), Refinery 8.2mmscmd (10.5% YoY;  ‐3.4%QoQ), Fertilizer: 3.4mmscmd (+12.7% YoY; +7.7% QoQ), Power: 1.1mmscmd (‐77% YoY;  ‐48% QoQ), others : 5.2mmscmd (+2.3% YoY; +2.1% QoQ).

* Per unit metrics: The Revenue and Ebitda per unit improved to Rs 1.6/scm (+8% YoY; +2.2% QoQ) and Rs 1.2/scm (+2.8% YoY; +1.5% QoQ), even as volumes declined, primarily on triggering of ‘Ship or Pay’ clauses.

Valuation

We maintain our BUY rating on GUJS, with a revised TP of Rs 370/sh (from Rs 400/sh), as we adjust our estimates to accommodate for a slower trajectory in volume growth and to account for downward revision in tariff. Our SOTP ascribes Rs 115/sh to GUJS’s core business, on DCF basis and Rs 255/sh to listed and unlisted investments.  

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