4 August 2020
1QFY21 Results Update | Sector: Oil & Gas
Gujarat Gas
Estimate changes
TP change
Rating change
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CMP: INR310
TP: INR360 (+16% )
Buy
Quarter led by better margin; Brisk recovery in volumes
GUJGA reported better-than-expected margin of INR4.9/scm (higher QoQ as well), while
volumes were in line with est. (at 4.1mmscmd), leading to EBITDA of INR1.85b.
The company mentioned that current sales volume stands at 9.5mmscmd (v/s
9.4mmscmd of average sales in FY20), aided by strong recovery post lockdown. As per
our interaction with the company, Morbi volumes are back at ~5.5mmscmd (v/s exit rate
of ~6.5–6.8mmscmd in FY20).
Despite lockdown, GUJGA was able to add 13 new CNG stations during the quarter and
plans to add ~60 new CNG stations this year (of the total 100 planned outlets – which
should further grow the reach of CNG in Gujarat and encourage conversions).
COVID-19-led lockdown has led to some delay in the implementation of various
directives announced by the National Green Tribunal (NGT) last year. However, a bench
of the NGT recently sought an Action Taken Report (ATR) within four months to ensure a
ban on the usage of pet coke and furnace oil by all states and UTs. The date for a further
th
hearing is set as 15 Jan’21
(article).
According to the NGT’s list of critically/severely (air) polluted industrial clusters, Gujarat
has five clusters wherein the volume boost (as for Morbi) could come up.
Also, GUJGA expects non-Morbi industrial volumes to reach ~2.9mmscmd by the end of
FY21 from ~2.5mmscmd in FY20. Tarapur is a large industrial cluster with huge potential
for industrial volumes (along with Thane, expect ~0.5mmscmd).
The newly awarded 16–17 cities could see volumes of 2.5–3mmscmd over the next four
to five years. Thus, GUJGA could see a major boost in volumes at CAGR of ~10% over the
medium term on the highest volume base among peers.
We reiterate GUJGA as our top buy (at INR360, valuing it at 22x FY22E EPS), with the best
RoE profile of 22–25% and expected FCF generation of ~INR20.4b over FY21-FY22.
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
GUJGA IN
688
213.2 / 2.8
330 / 162
-8/14/74
249
Financials & Valuations (INR b)
Y/E March
2020E 2021E 2022E
Sales
103.0 94.6 132.3
EBITDA
16.3 14.8 19.3
PAT
11.9
7.8 11.3
EPS (INR)
17.3 11.4 16.4
EPS Gr. (%)
177.8 -34.5 44.0
BV/Sh.(INR)
47.8 56.8 69.6
Ratios
Net D:E
0.6
0.4
0.3
RoE (%)
43.6 21.7 25.9
RoCE (%)
29.8 23.3 29.4
Payout (%)
8.7 21.2 21.2
Valuations
P/E (x)
17.7 27.0 18.8
P/BV (x)
6.4
5.4
4.4
EV/EBITDA (x)
13.6 14.8 10.8
Div. Yield (%)
0.4
0.7
0.9
FCF Yield (%)
6.1
3.1
6.5
Better margins, in-line volumes
EBITDA/scm was better than est. at INR4.9/scm (v/s est. INR4.1) and higher QoQ as
well (INR4.7 in 4QFY20). Reported EBITDA was at INR1.85b (-60% YoY; -56% QoQ),
with PBT at INR0.8b. PAT came in at INR0.6b (-75% YoY and QoQ).
Total volumes were in-line, est. at 4.1mmscmd (-55% YoY; -58% QoQ).
CNG volumes stood at 0.7mmscmd (-54% YoY and QoQ).
PNG I/C stood at 2.9mmscmd (-60% YoY; -63% QoQ).
PNG Domestic was at 0.6mmscmd (+16% YoY; -13% QoQ).
Shareholding pattern (%)
As On
Jun-20 Mar-20 Jun-19
Promoter 60.9
60.9
60.9
DII
7.4
7.0
5.4
FII
9.2
9.8
11.9
Others
22.5
22.2
21.7
FII Includes depository receipts
Valuation and view
PNGRB is expected to introduce competition in areas where marketing exclusivity
has already expired. This would impact all CGDs. However, due to the increasing
focus on industrial pollution, we expect it would be easier for GUJGA to coup up
lost volumes (from the five clusters and newer GAs mentioned above).
On a conservative basis, we assume total volumes of 8.4mmscmd for FY21 (against
9.4mmscmd in FY20) and 11.1mmscmd for FY22, with EBITDA/scm of INR4.8 for
FY21/22E (unchanged). However,
continued outperformance in volumes and margins
could lead to upward revision in estimates, along with the re-rating of the stock.
GUJGA is trading at 18.8x FY22 EPS of INR16.4 and 10.8x FY21 EV/EBITDA. We
value the company at 22x FY22E EPS to arrive at target price of INR360.
Swarnendu Bhushan- Research Analyst
(Swarnendu.Bhushan@MotilalOswal.com)
Sarfraz Bhimani - Research Analyst
(Sarfraz.Bhimani@MotilalOswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
3 September 2019
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