gujarat gas, 2q cy 2013
TRANSCRIPT
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7/27/2019 Gujarat Gas, 2Q CY 2013
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Please refer to important disclosures at the end of this report 1
Quarterly highlights (Consolidated)Y/E Dec. (` cr) 2QCY2013 2QCY2012 % chg (yoy) 1QCY2013 % chg (qoq)Net operating income 751 772 (2.7) 768 (2.2)EBITDA 156 83 87.4 72 115.8
EBITDA margin (%) 20.8 10.8 999bp 9.4 1136bp
Adj. PAT 101 53 91.1 59 70.3Source: Company, Angel Research
Gujarat Gas (GGAS) reported a strong set of results for 2QCY2013 on the back
of higher realizations coupled with lower costs. However, we maintain ourNeutral rating on the stock.Top-line decreases by 2.7% due to lower volumes: The company reported a2.7% decline in top-line as volumes declined by 17.3% yoy to 239mmscm.
Lower volumes were partially offset by higher realizations which grew by 17.9%
to `31.2/scm.
Lower gas costs boost EBITDA: The cost of gas sold decreased by 14.5% yoy to`542cr which led to the EBITDA increasing by 87.4% yoy to `156cr. The
companys other income also increased by 52.3% yoy to `13cr which led to the
net profit increasing by 91.1% yoy to `101cr.
Outlook and valuation: The companys volumes have declined gradually duringthe past one year on account of higher price of spot LNG and lower production
from the KG D6 block. Going forward, we believe that high price of LNG will
continue to impact volume growth of the company. Further, the recent proposal
to cap gas marketing margin by PNGRB remains an overhang on the stock. At
current levels, the stock is trading at 8.6x and 8.4x CY2013E and CY2014E
earnings, respectively. Given the regulatory overhang, we maintain our Neutralrating on the stock.Key financials (Consolidated)Y/E Dec. (` cr) CY2011 CY2012 CY2013E CY2014ENet sales 2,419 3,096 3,316 3,460% chg 30.8 28.0 7.1 4.3
Net profit 273 286 290 296% chg 5.2 4.5 1.3 2.1
OPM (%) 16.5 13.2 12.8 12.6
EPS (`) 21.3 22.3 22.6 23.1P/E (x) 9.2 8.7 8.6 8.4
P/BV (x) 3.2 2.6 2.3 2.0
RoE (%) 33.4 32.6 28.2 25.6RoCE (%) 29.5 27.7 25.0 23.3
EV/Sales (x) 0.8 0.7 0.6 0.5
EV/EBITDA (x) 5.0 5.1 4.7 4.0
Source: Company, Angel Research; Note: CMP as of August 8, 2013
NEUTRALCMP `195
Target Price -
Investment Period -
Stock Info
Sector
Net Debt (`cr) (429)
Bloomberg Code
Shareholding Pattern (%)
Promoters 65.1
MF / Banks / Indian Fls 2.0
FII / NRIs / OCBs 15.3Indian Public / Others 17.7
Abs. (%) 3m 1yr 3yr
Sensex (6.0) 6.8 3.6
GGAS (23.1) (36.9) (39.0)
Oil & Gas
Avg. Daily Volume
Market Cap (`cr)
Beta
52 Week High / Low
Face Value (`)
BSE Sensex
Nifty
Reuters Code
2
18,789
5,566
GGAS.BO
GUJS@IN
2,498
1
353/159
9,266
Bhavesh ChauhanTel: 022- 3935 7800 Ext: [email protected]
Vinay RachhTel: 022- 39357600 Ext: 6841
Gujarat GasPerformance Highlights
2QCY2013 Result Update | Oil & Gas
August 10, 2013
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Gujarat Gas | 2QCY2013 Result Update
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Exhibit 1:2QCY2013 performance
Y/E Dec. (` cr) 2QCY2013 2QCY2012 % chg (yoy) 1QCY2013 % chg (qoq) CY2012 CY2011 % chg (yoy)Net Operating Income 751 772 (2.7) 768 (2.2) 3096 2419 28.0COGS 542 634 (14.5) 644 (15.9) 2483 1840 35.0Total operating expenditure 595 689 (13.6) 696 (14.5) 2688 2022 33.0
EBITDA 156 83 87.4 72 115.8 408 398 2.5EBITDA Margin (%) 20.8 10.8 9.4 13.2 16.4
Other Income 13 8 52.3 26 (51.7) 67 56 18.8
Depreciation 19 16 19.2 19 0.5 65 60 8.0
Interest - - - - -
PBT 150 76 97.8 80 88.3 407 393 3.5PBT Margin (%) 19.9 9.8 10.4 13.1 16.3
Total Tax 48 23 112.3 20 143.2 120 118 1.5
% of PBT 32.3 30.1 25.0 29.5 30.1
PAT 101 53 91.6 60 70.0 287 273 5.1Minority interest - - - 1 1 (25.8)
Adj. PAT 101 53 91.1 59 70.3 286 274 4.6PAT Margin (%) 13.5 6.9 7.7 9.2 11.3
Source: Company, Angel Research
Top-line decreases by 2.7% yoy due to lower volumes: The company reported a2.7% decline in top-line due to a decline in volumes by 17.3% yoy to 239mmscm.
Lower volumes were partially offset by higher realizations which grew by 17.9% to
`31.2/scm.
Exhibit 2:Volumes declined to 239mmscm....
314 304289 295
270 264239
-
10.0
20.0
30.0
40.0
0
50
100
150
200
250
300
350
4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13
(`/scm
(mmscm)
Gas volumes Avg realization (RHS)
Source: Company, Angel Research
Exhibit 3:.... leading to top-line declining by 2.7%
26.8
36.8
31.928.0
17.1
6.1
(2.7)(8.0)
(4.0)
-
4.0
8.0
12.0
16.0
20.0
24.0
28.0
32.0
36.0
40.0
-
100
200
300
400
500
600
700
800
900
4QCY11 2QCY12 4QCY12 2QCY13
(%)
(`cr)
Operating revenues Operating revenues growth (RHS)
Source: Company, Angel Research
Lower gas costs boost EBITDA: The cost of gas sold decreased by 14.5% yoy to`542cr which led to the EBITDA increasing by 87.4% yoy to `156cr. The
companys other income also increased by 52.3% yoy to `13cr which led to the net
profit increasing by 91.1% yoy to `101cr.
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Exhibit 4:Average cost of gas stood at 22.7/scm
2.3 3.9 4.66.1 5.7
4.5
8.6
18.2
19.6
21.9 22.0 22.424.4
22.7
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13
(`/scm)
Avg. blended margin Avg. gas cost
Source: Company, Angel Research
Exhibit 5:Operating margins increased to 20.8%
4.6
10.610.8
16.4 14.5
9.4
20.8
3.0
8.0
13.0
18.0
23.0
-
20
40
60
80
100
120
140
160
180
4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13
(%)
(`cr)
Operating Profit Operating Margins (RHS )
Source: Company, Angel Research
Exhibit 6:Net Profit increased by 91.1% yoy
(69.7)
(10.9)
(44.8)
24.8
181.9
(7.1)
91.1
(100.0)(80.0)
(60.0)(40.0)(20.0)-20.040.060.080.0100.0120.0140.0160.0180.0200.0
-
20
40
60
80
100
120
4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13
(%)
(`cr)
PAT PAT growth (RHS)
Source: Company, Angel Research
Investment arguments
Expensive RLNG to mute volume growth: Over the past one year, there has been adecline in gas production from KG-D6. The company is ensuring that the shortfall
in volume is partially compensated by higher RLNG procurement which is however,
expensive and not feasible for several of GGASs customers. Hence, we expectvolume growth to remain muted over the coming two years.
Regulatory overhang to persist:After the verdict of the Delhi High Court, thecompanys marketing margin remains outside the purview of PNGRB. However,
PNGRB has indicated that it aims to regulate the marketing margins charged by
the utilities. This could potentially impact GGASs tariffs and margins adversely in
case there is a cap on marketing margin.
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Gujarat Gas | 2QCY2013 Result Update
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Outlook and valuation
The companys volumes have declined gradually during the past one year on
account of higher price of spot LNG and lower production from the KG D6 block.Going forward, we believe that high price of LNG will continue to impact volume
growth of the company. Further, the recent proposal to cap gas marketing margin
by PNGRB remains an overhang on the stock. At current levels, the stock is trading
at 8.6x and 8.4x CY2013E and CY2014E earnings, respectively. Given the
regulatory overhang, we maintain our Neutral rating on the stock.Exhibit 7:Key assumptions
Particulars CY2013E CY2014ESales volumes (mmscm) 990 1,029
Blended Realisation (`/scm) 33.0 33.2
Gas Purchase cost (`/scm) 26.5 26.7
Source: Company, Angel Research
Exhibit 8:Angel EPS forecast vs consensus
Angel Forecast Bloomberg Consensus Variation (%)CY2013E 22.6 22.3 1.5CY2014E 23.1 22.6 2.2
Source: Company, Angel Research
Exhibit 9:One-year forward P/E
0
50
100
150
200
250
300
350
400
450
500
Feb-08
May-08
Aug
-08
Nov-08
Feb-09
May-09
Aug
-09
Nov-09
Feb-10
May-10
Aug
-10
Nov-10
Feb-11
May-11
Aug
-11
Nov-11
Feb-12
May-12
Aug
-12
Nov-12
Feb-13
May-13
Aug
-13
(`)
7x 10x 13x 16x 19x
Source: Company, Angel Research
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Exhibit 10: Recommendation summary
Company CMP TP Reco. Mcap Upside P/E (x) P/BV (x) EV/EBITDA (x) RoE (%) RoCE (%)(`) (`) (` cr) (%) CY13E CY14E CY13E CY14E CY13E CY14E CY13E CY14E CY13E CY14E
GGAS 195 - Neutral 2,498 - 8.6 8.4 2.3 2.0 4.7 4.0 28.2 25.6 25.0 23.3PLNG 118 167 Buy 8,853 42 7.9 7.0 1.7 1.4 4.8 4.2 22.9 21.5 21.6 22.9
IGL 264 - Neutral 3,693 - 9.9 8.7 2.1 1.7 4.6 3.8 22.7 21.8 26.6 27.8
GSPL 51 68 Buy 2,886 33 5.1 4.5 0.8 0.7 2.1 1.6 17.3 16.8 19.1 19.1
*For IGL, PLNG and GSPL: CY13E=FY14E and CY14E=FY15E
Company background
GGAS is one of the largest private sector players in natural gas transmission and
distribution business in Gujarat. GGAS became a subsidiary of the BG Group in
1997 as the latter acquired more than 60% shares from Mafatlal group and others
and later increased its stake to 65%. During the last five years, the company hasexpanded in southern Gujarat and has exclusive distribution rights in the
industrialized cities of Surat, Ankleshwar and Bharuch. Currently, it supplies gas to
more than 349,000 domestic, commercial and industrial customers. The
companys pipeline network is spread over 3,700km. During October 2012,
Gujarat State Petroleum Corporation announced to acquire the entire 65%
BG Groups stake in GGas.
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Gujarat Gas | 2QCY2013 Result Update
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Profit & loss statement (Consolidated)
Y/E December (` cr) CY09 CY10 CY11 CY12 CY13E CY14ETotal operating income 1,420 1,849 2,419 3,096 3,316 3,460% chg 9.1 30.3 30.8 28.0 7.1 4.3Total Expenditure 1,140 1,432 2,021 2,688 2,892 3,023
Net Raw Materials 1,003 1,286 1,840 2,484 2,626 2,745
Other Mfg costs 20 97 121 140 56 56
Personnel 45 50 61 64 76 80
Other 72 (2) (1) - 134 142
EBITDA 280 418 398 408 424 437% chg 18.8 49.4 (4.7) 2.6 3.7 3.1
(% of Net Sales) 19.7 22.6 16.5 13.2 12.8 12.6
Depreciation & Amortization 47 54 60 66 76 82
EBIT 232 363 338 343 348 355% chg 20.0 56.5 (7.0) 1.3 1.6 2.0
(% of Net Sales) 16.4 19.7 14.0 11.1 10.5 10.3
Interest & other Charges 0 0 1 2 1 1
Other Income 27 22 56 67 69 70
(% of PBT) 10.3 5.8 14.4 16.4 16.5 16.6
Share in profit of Associates - (2.0) (1.0) - - -
Recurring PBT 259 383 392 408 416 424% chg 10.3 48.2 2.2 4.1 1.9 2.1
Extraordinary Expense/(Inc.) - (2.0) (1.0) - - -
PBT (reported) 259 385 393 408 416 424Tax 84 124 118 121 125 127
(% of PBT) 32.3 32.3 30.1 29.7 30.0 30.0
PAT (reported) 175 261 275 287 291 297Add: Share of earnings of asso. - (2) (1) - - -
Less: Minority interest (MI) 1 1 1 1 1 1
Prior period items - (2) (1) - - -
PAT after MI (reported) 174 260 273 286 290 296ADJ. PAT 174 262 274 286 290 296% chg 8.4 50.3 4.8 4.2 1.3 2.1
(% of Net Sales) 12.3 14.2 11.3 9.2 8.7 8.5
Basic EPS (`) 13.6 20.1 21.2 22.3 22.6 23.1Fully Diluted EPS ( ) 13.6 20.1 21.3 22.3 22.6 23.1% chg 8.4 48.0 5.7 4.9 1.3 2.1
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Balance sheet (Consolidated)
Y/E December (` cr) CY09 CY10 CY11 CY12 CY13E CY14ESOURCES OF FUNDSEquity Share Capital 28 29 30 29 29 29Preference Capital 14 14 14 - - -
Reserves& Surplus 738 815 758 937 1,061 1,192
Shareholders Funds 780 859 803 965 1,090 1,220Minority Interest 5 6 7 9 11 12
Total Loans 155 207 - - - -
Deferred Tax Liability 56 67 74 88 88 88
Long term provisions 5 - - -
Other Long term liabilities 254 269 269 269
Total Liabilities 996 1,140 1,143 1,331 1,457 1,589APPLICATION OF FUNDSGross Block 914 1,019 1,108 1,291 1,402 1,513
Less: Acc. Depreciation 333 383 445 502 578 659
Net Block 581 636 664 789 824 853Capital Work-in-Progress 136 138 126 113 132 151
Goodwill - - - - -
Long term loans & Advances 37 20 20 20
Other Non-current assets 1 1 1 1
Investments 448 583 501 387 387 387Current Assets 179 188 244 270 413 723
Cash 8 9 14 42 98 364
Loans & Advances 26 19 21 8 29 30
Other 145 159 209 220 286 329
Current liabilities 348 405 429 249 319 546
Net Current Assets (168) (217) (185) 22 93 177Mis. Exp. not written off 0 - - - - -
Total Assets 996 1,140 1,143 1,331 1,457 1,589
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Cash Flow Statement (Consolidated)
Y/E December (` cr) CY09 CY10 CY11 CY12 CY13E CY14EProfit before tax 259 383 393 409 416 424
Depreciation 47 54 60 66 76 82Change in Working Capital (30) (15) 6 (12) (15) 182
Less: Other income (21) (14) (44) (27) (69) (70)
Direct taxes paid (78) (124) (111) (107) (125) (127)
Cash Flow from Operations 178 285 304 330 282 490(Inc.)/ Dec. in Fixed Assets (152) (112) (111) (167) (130) (130)
(Inc.)/ Dec. in Investments (63) (123) 53 123 - -
Other income 18 21 38 27 69 70
Cash Flow from Investing (197) (215) (20) (18) (61) (60)Issue of Equity - - - (14) - -
Inc./(Dec.) in loans 28 52 49 14 - -
Dividend Paid (Incl. Tax) (24) (121) (328) (284) (165) (165)
Cash Flow from Financing 4 (69) (279) (284) (165) (165)Inc./(Dec.) in Cash (15) 1 5 28 56 265
Opening Cash balances 22 8 9 14 42 98Closing Cash balances 8 9 14 42 98 364
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Key ratios
Y/E December CY09 CY10 CY11 CY12 CY13E CY14EValuation Ratio (x)P/E (on FDEPS) 14.3 9.7 9.2 8.7 8.6 8.4P/CEPS 11.3 8.0 7.5 7.1 6.8 6.6
P/BV 3.3 3.0 3.2 2.6 2.3 2.0
Dividend yield (%) 4.1 6.2 5.1 5.1 5.6 5.6
EV/Sales 1.5 1.0 0.8 0.7 0.6 0.5
EV/EBITDA 7.4 4.7 5.0 5.1 4.7 4.0
EV/Total Assets 2.1 1.7 1.7 1.6 1.4 1.1
Per Share Data (`)EPS (Basic) 13.6 20.1 21.2 22.3 22.6 23.1
EPS (fully diluted) 13.6 20.1 21.3 22.3 22.6 23.1
Cash EPS 17.3 24.3 25.9 27.4 28.5 29.4
DPS 8.0 12.0 10.0 10.0 11.0 11.0
Book Value 59.7 65.9 61.5 75.3 85.0 95.2
Dupont Analysis (%)EBIT margin 16.4 19.5 13.9 11.1 10.5 10.3
Tax retention ratio 67.7 67.6 69.8 70.3 70.0 70.0
Asset turnover (x) 1.5 1.7 2.1 2.6 2.5 5.1
ROIC (Post-tax) 16.8 23.1 20.8 19.9 18.4 36.6
Cost of Debt (Post Tax) - - - - - -
Leverage (x) - - - - - -
Operating ROE 16.8 23.1 20.8 19.9 18.4 36.6
Returns (%)ROCE (Pre-tax) 24.4 33.8 29.5 27.7 25.0 23.3
Angel ROIC (Pre-tax) 29.0 39.2 33.8 31.4 29.0 57.9
ROE 23.6 32.0 33.4 32.6 28.2 25.6
Turnover ratios (x)Asset Turnover (Gross Block) 1.7 1.9 2.3 2.6 2.5 2.4
Inventory / Sales (days) 5 3 2 2 3 2
Receivables (days) 27 25 23 21 23 26
Payables (days) 62 52 30 15 17 34
WC cycle (ex-cash) (days) (34) (40) (32) (13) (1) (0)
Solvency ratios (x)Net debt to equity (0.6) (0.7) (0.7) (0.4) (0.4) (0.6)
Net debt to EBITDA (1.5) (1.3) (1.3) (1.0) (1.1) (1.7)
Interest Coverage (EBIT/Int.) 1,706.9 782.3 226.1 216.8 347.9 354.9
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Research Team Tel: 022 - 3935 7800 E-mail: [email protected] Website: www.angelbroking.com
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Disclosure of Interest Statement Gujarat Gas
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.
Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)