IGI Logo

In line EBITDA and PAT, industrial volumes better than expected but EBITDA spreads lower

Our View

Gujarat Gas' Q1FY25 results were in line, volumes positively surprise driven by Morbi cluster demand and EBITDA spreads weaker. Volumes at 10.98mmscmd versus our expectations of 10.45mmscmd with Morbi contributing 5.21mmscmd and CNG hitting new peak at 3mmscmd, while the EBITDA spread of Rs 5.4/scm was lower than anticipated. The trending volumes are morbi are down 30-40% over Q1FY25 and are affected by factors – 1) geopolitical situations globally; 2) Propane prices which are cheaper; 3) Janmashtami shut period and monsoon impact; 4) Shipping related issues. The current price for ceramic cluster at Rs 44/scm vs propane at Rs40/scm. This gives a weak picture for Q2 and the company expects a recovery in H2FY25 where Morbi cluster demand would be a key. We retain our REDUCE rating on the stock with an unchanged target price of Rs 600/share.

Result Highlights

* Performance: The company reported volumes of 10.98mmscmd (at 10-qtr high), higher than estimated of 10.45mmscmd. The EBITDA spread at Rs5.4/scm was lower than our expectation of Rs 5.8/scm. Compared to our and consensus, the performance is more or less in line but higher volumes are a positive surprise.

* EBITDA/PAT at Rs 5.4/3.3bn, up 38.1%/ 53.3% YoY with better volumes on YoY and EBITDA spreads, while it was down 9.4%/6.8% QoQ on improved volumes but weaker EBITDA spreads.

* Volumes at 10.98mmscmd were up 19.1% YoY and 13.3% QoQ. CNG volumes were 2.98mmscmd (at quarterly peak) up 14.2% YoY, 3.1% QoQ. D-PNG volumes at 0.62mmscmd were up 3.3% YoY and down 27.1% QoQ. Industrial volumes were at 7.25mmscmd (Morbi at 5.21mmscmd) up 30% YoY and 37% QoQ. It also added 0.2mmscmd of industrial volumes from new customers during the quarter.

* Spreads: The gross margin at Rs8.6/scm up 5.3% YoY and down 19.9% QoQ due to a decline in industrial morbi gas realization. Opex was Rs2.8/scm; vs Rs2.9 a year ago and Rs3.5 the previous quarter. Gas cost: The average blended gas cost was at Rs 35.9/scm ($12/mmbtu) marginally higher than our expectations of $11.8mmbtu. EBITDA/scm was Rs5.4, up 15.9% YoY, but down 20% QoQ, on a reduction in blended realizations.

* Connections. The company added 37,400 new domestic customers, supplying to more than 2.15mn D-PNG customers and operates in CNG with over 810 stations.

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 28.3x/24.8x FY25e/26e PER. We value it on a PER basis assigning a 24x multiple and, recommend a REDUCE with unchanged target price of Rs 600/share.

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632.