IGI Logo

Robust quarter driven by recovery in volume and margins

Gujarat Gas’ (GGas) 2QFY24 standalone EBITDA was INR 5.0bn, slightly above JMFe of INR 4.9bn but significantly above consensus of INR 3.8bn due to higher-than-expected volume while margin was a tad lower. Volume was 4.7% above JMFe at 9.2mmscmd in 2QFY24 (up 2.2% QoQ) due to higher volume in the key industrial segment. EBITDA margin recovered to INR 5.8/scm (from INR 4.6/scm in 1QFY24) aided by lower gas cost and some price hike undertaken in the industrial segment due to rise in the price of propane; however, this was slightly lower than JMFe of INR 6.0/scm. Despite near-term volatility in earnings depending on propane price competitiveness, we reiterate BUY (unchanged TP of INR 550) as we expect volume growth momentum to sustain in the medium to long term led by rise in gas use in the industrial segment, normalisation of propane prices and limited threat from electric vehicles.

* Volume up 2.2% QoQ at 9.3mmcmd vs. JMFe of 8.9mmscmd led by higher industrial volume: Gujarat Gas’ (GGas) 2QFY24 standalone EBITDA was INR 5.0bn, slightly above JMFe of INR 4.9bn but significantly above consensus of INR 3.8bn due to higher-than-expected volume while margin was a tad lower. Hence, PAT at INR 3.0bn was also slightly higher than JMFe of INR 2.9bn but significantly above consensus of 2.2bn. Volume was 4.7% above JMFe at 9.2mmscmd in 2QFY24 (up 2.2% QoQ and up 22% YoY on a low base) due to higher volume in the key industrial segment. Industrial volume was 6.1% above JMFe at 5.9mmcmd (up 0.8% QoQ and up 31% YoY on a low base). CNG volume was marginally lower at 2.6mmscmd (up 1.5% QoQ and up 12.9% YoY). Domestic PNG volume rose 17.9% QoQ in 2QFY24, after declining sharply in 1QFY24. Commercial segment volume was also 6.7% above JMFe at 13mmscm (up 8.9% QoQ).

* EBITDA margin recovered to INR 5.8/scm (from INR 4.6/scm in 1QFY24) though it was a little lower than JMFe of INR 6.0/scm: EBITDA margin recovered to INR 5.8/scm (from INR 4.6/scm in 1QFY24) aided by lower gas cost and some price hike undertaken in the industrial segment due to rise in the price of alternative fuel (propane); however, this was a tad lower than JMFe of INR 6.0/scm. Average cost of gas declined to USD 12.0/mmbtu or INR 35.6/scm (vs. USD12.5/mmbtu in 4QFY23); this could be due to purchase of spot LNG at lower price during the quarter, given the volatility. However, average realisation was marginally lower at INR44.8/scm (vs. INR 45.1/scm in 1QFY24). Further, Opex also declined to INR 3.5/scm in 2QFY24 (vs. INR 3.7/scm in 1QFY24) partly aided by positive operating leverage on account of higher volume.

* Reiterate BUY despite near-term concerns on account of competitive threat from propane: Despite near-term volatility in earnings depending on spot LNG vs. propane price competitiveness, we reiterate BUY (unchanged TP of INR 550) as we expect volume growth momentum to sustain in the medium to long term led by rise in gas use in the industrial segment (driven by economics, and also due to regulatory push), normalisation of spot LNG and propane prices and limited threat from electric vehicles. At CMP, GGas is trading at 21.4x FY25 P/E and 3.6x FY25 P/B. Key risk could be high spot LNG prices and low propane price posing significant competitive threat from propane.

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361