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Stronger performance on higher EBITDA spreads

Our View

Gujarat Gas' Q4FY24 results exceeded expectations due to higher EBITDA spreads and fall in gas costs. Volumes met estimates at 9.69mmscmd, while the EBITDA spread of Rs 6.7/scm was materially higher than anticipated. This stronger performance stemmed primarily from lower gas costs despite price cuts and limited availability of priority allocated gas. We retain our Add rating on the stock with a revised target price of Rs 600/share (earlier Rs 661).

Result Highlights

* Performance: The company reported volumes of 9.69mmscmd, in line with our estimates of 9.65mmscmd. The EBITDA spread at Rs6.7/scm was higher than our expectation of Rs 5.9/scm. Compared to our and consensus, the performance is stronger attributed to better EBITDA spreads on higher fall in gas costs.

* EBITDA/PAT at Rs 5.9/3.5bn, up 5.5%/ down 4.2% YoY with better volumes but marginally lower EBITDA spreads, while it was up 47.5%/60.6% QoQ on improved volumes and EBITDA spreads. There is an exceptional income of Rs 5.6bn pertaining to write back of provisions made in earlier periods for trade margin on sale of CNG, a settlement with OMCs.

* Volumes at 9.69mmscmd were up 9.4% YoY and 5.8% QoQ. CNG volumes were 2.89mmscmd (at quarterly peak) up 14.2% YoY, 4% QoQ. D-PNG volumes at 0.85mmscmd were up 2.4% YoY, 19.7% QoQ. Industrial volumes were at 5.80mmscmd (Morbi assumed at ~3.9mmscmd) up 8.2% YoY and 4.9% QoQ.

* Spreads: The gross margin at Rs10.77/scm up 1.2% YoY, 28.5% QoQ due to improved volumes and decreased gas cost. ? Opex was Rs3.5/scm; vs Rs3 a year ago and Rs3.05 the previous quarter.

* Gas cost: The average blended gas cost was at Rs 36.12/scm ($12.1/mmbtu) lower than our expectations of $12.3mmbtu, on same-as-expected spot LNG price.

* EBITDA/scm was Rs6.7, down 4.6% YoY, but up 41% QoQ, on a reduction in gas costs.

* Connections: The company added 50,800 new domestic customers, 271 commercial, and 76 industrial customers in the quarter. The company operates in CNG with over 815 stations.

* FY24 performance: EBITDA/Adj. PAT was at Rs 18.8/10.9bn vs Rs 23.9/15.3bn last year. The volumes at 9.3mmscmd (vs 8.4 last year), of which CNG was at 2.73mmscmd vs 2.41 last year. The EBITDA spread was at Rs 5.48/scm vs 7.85 last year.

Valuation

Given robust cashflows and reasonable capex the company is rapidly de-levering and maintaining a strong RoCE. We forecast spreads of Rs/scm 6.5/6.7 for FY25/26. The stock trades at fair 24.9x/21.8x FY25e/26e PER. We value it on a PER basis assigning a 24x multiple and, recommend an ADD with a revised target price of Rs 600/share (earlier Rs 661).

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