Gujarat Gas - Q2CY12 Result Update - Centrum

Demand woes, rupee depreciation dent Q2

Gujarat Gas reported dismal set of numbers with profitability declining by 45.9% YoY and 19.8% QoQ at Rs521mn. Despite price hikes for industrial retail and commercial segments in Q2, sequential volume decline due to demand slowdown from these segments took a toll on the overall performance, aggravated by over 8% rupee depreciation on a QoQ basis. To contain the margin decline, GujGas raised prices across segments except of domestic PNG from July 1. Volumes have also revived due to the seasonality factor in the past few weeks. Although, Q3 and Q4 performance is expected to be better with volume increase and margin expansion, we do not foresee any significant improvement in YoY performance during CY12. Hence, we maintain our negative view on the stock and maintain 'Sell'.

- Average realisations go up due to price hikes: GujGas's average distribution rate jumped by 12.8% QoQ and 38.8% YoY to Rs26.5/scm on the back of price hikes exercised during the quarter in its industrial retail and commercial segments. However, demand decline in the industrial retail segment took a toll on volumes which declined by 4.9% QoQ and 4.3% YoY to 3.2mmscmd. Overall, revenues went up by 6.7% QoQ to Rs7.7bn.

- EBITDA/scm expands to Rs2.7/scm: Price hikes during the quarter led to the revival in EBITDA/scm to Rs2.7/scm from Rs2.2/scm in Q1CY12 which is still short of the average of Rs3.0/scm. Higher spot LNG prices and over 8% QoQ rupee depreciation took a toll on operating performance despite price hikes. Average natural gas sourcing cost jumped 12.0% QoQ and 65.9% YoY to Rs21.9/scm.

- Depreciation, other income in line: Depreciation was in line at Rs158mn and so too other income at Rs82mn. The company has invested over Rs800mn during H1CY12 in augmenting the pipeline infrastructure which would lead to volume expansion going ahead. PAT declined substantially on a YoY basis by over 45.9% at Rs521mn while it remained lower by 19.8% QoQ due to higher other income (due to one offs) in Q1CY12.

- Volume growth expected in Q3 and Q4 but profitability to be hit on a YoY basis: Seasonally Q3 is the best quarter due to the start of the festive season and even Q4 is normally good. Hence, the company would be able to post good numbers in H2 which would partially make up for lower earnings in H1. However, we remain skeptical of any meaningful volume growth in GujGas due to higher LNG prices and rupee depreciation which has led to higher retail prices thus impacting demand. Based on H1 performance, we have revised our CY12E and CY13E numbers downwards. We foresee YoY drop in profitability during FY12E owing to rupee depreciation and lower volumes. We believe volume growth will return only when LNG price softens and rupee appreciates. In the near term we remain negative on GujGas and maintain 'Sell' rating on the stock.

Source : Equity Bulls

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