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During Q4, Gujarat Gas (GujGas) reported significant beat supported by robust sequential expansion in EBITDA/scm. 41.0% QoQ surge in EBITDA/scm at Rs6.7/scm led to EBITDA/ PAT surging by 47.5%/85.7% QoQ. Overall volumes jumped 5.8% QoQ and 9.4% YoY at 9.7mmscmd. YoY volume growth was supported by surge in CNG volumes while QoQ volumes benefitted from growth in both industrial and CNG volumes. During FY24, the company reported 11.6% YoY jump in overall volumes, however 29.9% YoY decline in EBITDA/scm led to EBITDA/PAT declining by 21.6%/25.2% YoY. Management guided overall YoY volume growth of ~10% YoY in FY25E with EBITDA/scm guidance of Rs4.5-5.5/scm. Incrementally, capex intensity is expected to remain at ~Rs10bn p.a. Based on management guidance, we have lowered our FY25E/FY26E EBITDA estimates by 3.8%/5.9% considering EBITDA/scm at Rs5.5/Rs5.6. GujGas continues to command high valuations despite some risk related to EV adoption. Based on our revised estimates, we maintain our SELL rating with a DCF based revised TP of Rs460 (Rs423).

Strong Q4 performance supported by volume growth and expansion in EBITDA/scm

In Q4, GujGas’ overall volumes jumped 5.8% QoQ at 9.7mmscmd. Sequentially lower gas costs led to significant 41.0% QoQ expansion in EBITDA/scm at Rs6.7/scm. Q4 volume growth was equally driven from industrial and CNG volumes. GujGas’ current volumes stand at ~11mmscmd (in May). Lower gas prices led to 28.5% QoQ jump in GP/scm leading to robust expansion in EBITDA/scm.

Morbi volumes jump QoQ, to drive growth hereon

During Q4, GujGas’ Morbi gas volumes jumped 11% QoQ to 3.83mmscmd. PNG domestic volumes surged 19.7% QoQ while commercial volumes jumped 7.1% QoQ at 1.0mmscmd. Based on the contracts signed with industrial customers, management remains confident of good 10% YoY volume growth in FY25E.

Rationalized CNG stations, capex slated at ~Rs10bn p.a.

Although, GujGas added 33 new CNG stations in FY24, it also rationalized 33 CNG stations due to poor volumes, keeping number of CNG stations intact YoY at 808. With FDODO scheme, the company plans to add over 200 CNG stations in the next 2-3 years. Despite lower capex at ~Rs8.1bn in FY24, the company expects to invest over Rs10bn p.a. towards primarily augmenting its pipeline infrastructure. As on Mar-24, GujGas’ PNG Domestic connections stand at 21.15+ lakhs, PNG Commercial at 15,200+, and PNG Industrial at 4,390+ with 39,300+ km of gas pipeline network and 27 CGD authorizations.

~10% YoY volume growth in FY25E, EBITDA/scm at Rs4.5-5.5/scm

Management remained confident of future gas supplies with adequate visibility for volume growth without compromising on margins. GujGas guided 10% YoY volume growth in FY25E while reiterating its EBITDA/scm guidance at Rs4.5-5.5/scm. Despite the risk due to rising EV adoption, GujGas is commanding premium valuations against the competition. The stock is currently trading at 31.0x/26.7x FY25E/FY26E EPS of Rs17.6/Rs20.5. We maintain Sell with a DCF based revised TP of Rs460 (Rs423).

Risks – Higher than expected volume growth and EBITDA/ scm

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