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Better-than-expected margins drive earnings beat

Q4FY21 EBITDA/PAT rose 30%/42% yoy (down 10%/11% qoq) to Rs5.54bn/Rs3.50bn, 31%/36% above our estimates on a 3% volume and 28% EBITDA/scm beat. Interest cost declined 26% qoq to Rs180mn, with net debt down 11% to Rs6.2bn.  Gas sales volumes grew 6% qoq and 22% yoy to 12.1mmscmd. Industrial PNG was up 5% qoq (25% yoy) to 9.6mmscmd, with Morbi up 4% to 7.3mmscmd. On a yoy basis, CNG/Dom. PNG/Comm. PNG was up 16%/up 11%/down 8% at 1.7/0.7/0.1mmscmd.  Net realization rose 17% qoq and gas cost jumped 27%, with gross margin declining 9% to Rs7.0/scm (17% beat though). Opex/scm rose 2% qoq to Rs2.0 (down 17% yoy). EBITDA/scm, hence, came in at Rs5.1, down 13% qoq/up 8% yoy.  We retain our FY22E/23E assumptions and EBITDA. GGL has seen a 15-20% volume decline in FY22 YTD due to the second Covid wave. Management however expects it to improve as restrictions are lifted. Retain Hold/UW with a TP of Rs520 (unchanged).

Q4FY21 highlights:

CNG volumes were healthy with 11% growth qoq. Other Income was flat yoy/down 4% qoq at Rs188mn, missing our estimate. For FY21, GGL’s EBITDA/APAT rose 28%/46% to Rs20.9bn/Rs12.8bn (Rs18.5 EPS), driven by 29% EBITDA/scm expansion to Rs6.1 and lower interest cost. Volumes were largely flat at 9.4mmscmd. Capex was Rs8.1bn, while dividend was Rs2/sh (11% payout). GGL added 150+ CNG outlets (totaling 559 as on FY21-end), 0.1mn+ dom. PNG customers (1.55mn+) and 350 IPNG customers (4,000+). Comm. PNG customers/pipelines stood at 13,000+/~30,000km. GGL’s board approved the purchase of Amritsar and Bhatinda CGD GAs by a slump sale from GSPL at a valuation of Rs1.63bn. GSPL’s board approval is pending. Capex of Rs1.97bn (incl Rs779mn of CWIP) has been incurred by GGL, while the facilitation fee of Rs27.3mn for the use of these assets was received from GSPL for FY21.

Guidance:

GGL’s FY22 YTD volumes stood at 10mmscmd (9mmscmd currently, Morbi at 5 now). CNG outlet addition run-rate will be sustained with an aim of 13-14% CNG volume growth (expect to touch 2mmscmd in a year from 1.6 now). EBITDA/scm guidance is maintained at Rs5.0+. Current gas mix has 0.7mmscmd of RIL deepwater and 1.5mmscmd of Vedanta Rajasthan − both being linked to spot LNG though latter (West India Marker) having 12% Brent slope as ceiling. LNG term contract volumes are continuing. Capex guidance for FY22 is Rs8bn+. The Amritsar-Bhatinda GA valuation is done by an independent valuer. GGL would pay Rs1.63bn to GSPL and bear Rs779mn of CWIP. Current volumes of these GAs are under 0.1mmscmd, but likely to touch 0.6-0.8mmscmd in 4-5 years.

Valuation:

Our Mar’23E DCF-based TP of Rs520 implies a 19.8x target PE multiple. Earnings outlook is steady, though we find valuations stretched with spot LNG a key risk. Other risks: Adverse oil-gas prices, currency, regulations, competition and operational-project issues.

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