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Earnings beat driven by higher volume & margin; maintain BUY

JM Financial Institutional Securities Limited JM Financial Research is also available on: Bloomberg - JMFR , Thomson Publisher & Reuters, S&P Capital IQ, FactSet and Visible Alpha Please see Appendix I at the end of this report for Important Disclosures and Disclaimers and Research Analyst Certification. Gujarat Gas’ (GGas) 4QFY24 standalone EBITDA, at INR 5.9bn, was significantly higher than JMFe/consensus of INR 4.7bn/INR 5.3bn due to higher-than-expected volume across segments and sharper-than-expected jump in margin driven by higher realisation. Overall volume was 2.8% higher than JMFe at 9.7mmscmd (up 5.8% QoQ and up 9.4% YoY) led by industrial volume being 2.2% above JMFe at 5.8mmcmd (up 4.9% QoQ and up 8.2% YoY) and CNG volume being 1.3% above JMFe at 2.9mmscmd (up 4.0% QoQ and up 14.2% YoY). Further, EBITDA margin was also better than expected at INR 6.7/scm vs. JMFe of INR 5.5/scm (vs. INR 4.8/scm in 3QFY24) driven by higher realisation. The board approved a dividend of INR 5.66/share (or 36% payout) for FY24 (vs. FY23 dividend of INR 6.65/share, implying 30% payout). We reiterate BUY (revised TP of INR 615) 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 spot LNG and propane prices, expansion of CNG in new geographical areas (GA’s) and limited threat from electric vehicles.

Volume at 9.7mmcmd was 2.8% above JMFe led by strong growth in Industrial and CNG segments:

Overall volume was 2.8% higher than JMFe at 9.7mmscmd in 4QFY24 (up 5.8% QoQ and up 9.4% YoY) led by industrial volume being 2.2% above JMFe at 5.8mmcmd (up 4.9% QoQ and up 8.2% YoY) aided by improved competitiveness of gas (on account of moderation in spot LNG price relative to alternative fuel propane). Further, CNG volume was also 1.3% above JMFe at 2.9mmscmd (up 4.0% QoQ and up 14.2% YoY) driven by expansion in its new GAs. Domestic PNG volume jumped 18.4% QoQ while commercial segment volume also grew 6% QoQ. Separately, during 4QFY24, the company commissioned +76 new industrial customers with a cumulative volume of ~0.3mmscmd. Further, as of end-FY24, the company has a signed volume of ~0.8mscmd that will be commissioned in coming days.

EBITDA margin improvement was also better than JMFe at INR 6.7/scm driven by higher realisation:

EBITDA margin was also better than expected at INR 6.7/scm vs. JMFe of INR 5.5/scm (vs. INR 4.8/scm in 3QFY24) driven by higher realisation. Average realisation was higher than JMFe at INR 46.9/scm (vs. INR 46.6/scm in 3QFY24). However, the average cost of gas was slightly higher than JMFe at INR 36.1/scm or USD 12.1/mmbtu (though slightly lower than INR 38.3/scm or USD12.8/mmbtu in 3QFY24); opex was also slightly higher QoQ at INR 4.1/scm in 4QFY24 (vs. INR 3.6/scm in 3QFY24).

Maintain BUY as we expect spot LNG price to remain muted on account of significant jump in LNG supply over medium to long term:

We have increased our FY26-26 EBITDA estimate by 1-2% factoring in FY24 results; our TP has been revised to INR 615 (from INR 590). We maintain BUY 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, expansion of CNG in new GAs and limited threat from electric vehicles. We expect spot LNG prices to remain muted on account of significant jump in LNG supply over the medium to long term. At CMP, GGas is trading at 22.4x FY26 P/E and 3.8x FY26 P/B. Key risk could be jump in spot LNG prices and fall in propane price, posing a significant competitive threat from propane.

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