Gujarat Gas - 2QCY2012 Result Update - Angel Broking

We resume our coverage on Gujarat Gas (GGAS). For 2QCY2012, GGAS reported decline in net profit due to lower volumes and decline in other income. We recommend Neutral rating on the stock.

Higher realization drives top-line growth: The company's top line increased by 31.9% yoy to Rs.772cr mainly on account of higher realization. Average sales realization grew by 38.8% yoy to Rs.26.5/scm, led by hike in selling prices of the industrial retail and CNG segments.

Higher costs and lower other income dents bottom-line: Cost of goods sold increased by 72.4% yoy to Rs.689cr on account of higher proportion of expensive RLNG sales coupled with INR depreciation against the USD. Hence, EBITDA fell by 40.7% yoy to Rs.83cr. Other income also fell by 42.5% yoy to Rs.8cr. Consequently, the company's net profit declined by 44.8% yoy to Rs.53cr.

Outlook and valuation: The company's volumes have continued to decline over the past three quarters. Going forward, we believe that high price of LNG will continue to impact the 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 16.0x and 13.9x CY2012E and CY2013E earnings, respectively. We believe the stock is fairly valued at current levels and, hence, recommend Neutral rating on the stock.

Source : Equity Bulls

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