Gujarat Gas - 3QCY2012 Result Update - Angel Broking

Gujarat Gas (GGAS) reported a strong growth in net profit on account of higher realizations. However, given the regulatory overhang on the stock, we recommend a Neutral rating on the stock.

Top-line growth of 28.0% yoy driven by higher realization: The company's top-line increased by 28.0% yoy to Rs.836cr mainly on account of higher realization (partially offset by lower volumes). The average sales realization grew by 42.6% yoy to Rs.28.1/scm, led by hike in selling prices in both, industrial retail and CNG segments. However, natural gas volume sold fell by 9.5% yoy to 295mmscm during the quarter.

Higher other income boosts bottom-line growth: The cost of goods sold increased by 42.6% yoy to Rs.699cr on account of higher proportion of expensive RLNG sales (47% of total volumes). Hence, the EBITDA grew by only 16.2% yoy to Rs.137cr, despite sales growth of 28.0% yoy. Other income increased by 87.8% yoy to Rs.19cr. Consequently, the company's net profit increased by 24.8% yoy to Rs.100cr.

Outlook and valuation: The company's volumes have declined gradually during the past one year on account of higher price of spot LNG. 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 the Petroleum and Natural Gas Regulatory Board (PNGRB) remains an overhang on the stock. At current levels, the stock is trading at 13.1x and 12.7x CY2012E and CY2013E earnings, respectively. Given the regulatory overhang, we maintain our Neutral rating on the stock.

Source : Equity Bulls

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