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Play on India’s growing gas demand...

Adani Total Gas’ (ATGL) operating revenues increased 25.3% YoY to | 614.5 crore in Q4FY21 owing to an increase in realisation as well as sales volume. On a QoQ basis, revenues grew 17.7%. Total sales volume was 1.8 mmscmd, up ~14% YoY, ~11% QoQ. EBITDA for the quarter increased 21.9% YoY to | 204.7 crore. Gross margins remained healthy at | 17/scm, up | 0.4/scm YoY due to better realisation. EBITDA/scm was at | 12.3/scm, | 0.7/scm higher YoY. Reported PAT was at | 144.8 crore, up 18.6% YoY.

Strong capex to drive volume growth

ATGL reported sales volume growth of ~14% YoY for Q4FY21. CNG sales were up ~7% YoY to 0.8 mmscmd on a lower base while PNG sales reported an increase of ~21% YoY to 1 mmscmd mainly due to sharp growth in the industrial segment. Due to lockdown restrictions, sales volume in Q1FY22E will be affected. ATGL has commenced work in 14 new geographical areas (GAs) that were awarded in the ninth and tenth bidding round. Planned capex of | 5500-6000 crore in the next five years would drive volume growth. We estimate sales volume CAGR of 16% in FY20-23E and expect strong volume growth, going ahead, as sales volume from new regions pick up.

Healthy margins outlook

Gross margins were at | 17/scm YoY, up | 0.2/scm YoY, down | 0.2/scm QoQ due to increase in gas costs. While spot LNG prices are higher, the company had taken price hikes in Q4FY21 that will support margins. We estimate gross margins at | 17.9/scm and | 18/scm for FY22E and FY23E, respectively. EBITDA/scm increased by | 0.7/scm YoY to | 12.3/scm. While EBITDA/scm is likely to be impacted in the short-term, we expect it to normalise from Q3FY22E onwards. We estimate AGL’s EBITDA/scm at | 13.3/scm and | 13.4/scm for FY22E and FY23E, respectively.

Valuation & Outlook

ATGL's sales volume continued to increase sequentially over FY21. The company added 102 CNG stations (90 stations in new GAs) in FY21 while volume mix of new GAs increased to 10% in FY21 from 4% in FY20 indicating growth potential. The continued strong capex in existing, new GAs along with favourable regulatory scenario is expected to lead to healthy volume growth over long term. ATGL also enjoys competitive advantage against traditional fuels as petrol, diesel prices saw a sharp increase in the current quarter. ATGL’s plan to develop an integrated CGD model and auto fuel retailing under the JV Total Adani Fuels Marketing is a step in the right direction. ATGL is well poised to benefit from India’s growing CGD sector. We roll over to FY23E valuations and value the stock using DCF method. Due to a sharp run-up in stock price, we maintain HOLD rating with a revised target price of | 1085 (earlier | 230).

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