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Gujarat Gas - Industrial volumes post big price hike key to outlook - ICICI Securities

Posted On: 2021-10-06 20:46:06 (Time Zone: IST)

Gujarat Gas (GGL) has hiked CNG price by Rs2.5/kg to partly pass on APM gas price rise on 1-Oct and gas price for industrial consumers by Rs9.5/scm (25%) to pass on spot LNG surge; GGL had hiked prices for industrial consumers by 13% on 24-Aug'21. At futures as of 5-Oct'21, average spot LNG is at US$34/mmbtu in Oct'21-Mar'22. GGL's FY22E margin would depend on its industrial sales volumes in H2FY22E; for volumes in excess of 6mmscmd, GGL would have to buy very expensive spot LNG, which would hit its margins. At H2 industrial volumes of 6-6.5mmscmd, we estimate FY22E EPS to be up 56-27% YoY, but at 7.0-7.5mmscmd to be down 2-31% YoY. Spot LNG surge has put GGL's strong volume growth at risk and led to margin uncertainty. We reiterate REDUCE on GGL.

- CNG price hike does not pass on entire APM gas price rise: Effective 5-Oct'21, CNG price has been hiked by Rs2.5/kg to pass on the US$1.22/mmbtu (Rs4.4/kg) HoH rise in APM gas price for H2FY22. Thus, the entire rise in APM gas price has not been passed on leading to Rs1.9/kg (Rs1.4/scm) fall in margin on CNG, which we estimate to be 17-18% of GGL's total FY22E volumes.

- 25% gas price hike for industrial consumers suggests GGL has chosen to sacrifice volume growth to prevent steep EPS fall: Spot LNG futures as of 5-Oct'21 for Oct'21-Mar'22 are at US$31.6-35.5/mmbtu with H2FY22E average at US$34/mmbtu vs just US$13.6/mmtu in H1. Factoring spot LNG and Brent futures as of 5-Oct'21 and GGL's price hike for industrial consumers of 25% but assuming no further price hikes, and industrial volumes at 6.0-7.5mmscmd in H2FY22E, we estimate GGL's FY22E: 1) EPS at Rs28.9-12.8 (up 56% YoY to down 31% YoY and 17% higher to 48% lower than our estimate); 2) EBITDA margin at Rs8.5-4.0/scm (up 39% to down 34% YoY), and 3) industrial volumes of 7.1-7.9mmscmd (up 7% to down 3% YoY) and total volumes of 9.7-10.4mmscmd (up 3-11% YoY).

- FY23E outlook to depend on industrial volumes possible at current prices and severity of winter, which would determine spot LNG outlook: At latest futures, FY23E spot LNG is at US$17.6/mmbtu. However, a severe winter may mean European gas storage falls to record lows and drives FY23E Asian spot LNG price up further. FY23E spot LNG of US$19.4-20.4/mmbtu can support industrial gas volumes of 10mmscmd while ensuring EBITDA margin of Rs4.5-5.5/scm if gas price for industrial consumers is not cut. However, moot question is, at current prices can industrial volumes rebound to a new high of 10mmscmd (past peak of 9.6mmscmd).

Shares of Gujarat Gas Limited was last trading in BSE at Rs. 620.85 as compared to the previous close of Rs. 627.50. The total number of shares traded during the day was 218260 in over 9530 trades.

The stock hit an intraday high of Rs. 647.05 and intraday low of 617.50. The net turnover during the day was Rs. 138869277.00.

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