Gujarat Gas Results Report - Volumes continue to shine! - HDFC Securities

Mr. Harshad Katkar, Institutional Research Analyst, HDFC Securities and Mr. Nilesh Ghuge, Institutional Research Analyst, HDFC Securities

Our BUY recommendation on Gujarat Gas (GGL) with a price target of INR 655 is premised on (1) volume growth at 21% CAGR over FY21-23E; (2) portfolio of mature, semi-mature, and new geographical areas (GAs); and (3) compelling valuations, given superior return ratios among the city gas distribution players. 4QFY21 EBITDA/APAT were 12/12% below our estimates, owing to 13% lower-than-expected per unit EBITDA margin, higher-than-anticipated depreciation, offset by 2% higher volumes.

Volumes: Blended volume stood at 12.13mmscmd (HSIE 11.92), pushed by strong industrial demand (9.58mmscmd or 79% of volume mix). CNG/Domestic PNG/Commercial PNG volumes stood at 1.71/0.73/0.11mmscmd in 4Q vs 1.54/0.64/0.10mmscmd in 3Q. The company's gas sales volume has shown a robust growth trajectory during 4Q. Volumes were at a record high in 4Q, the highest-ever in a quarter in the past five years.

Margin: Per unit gross spread remained flat YoY at INR 7.04/scm as benefit of falling raw material costs ended up wearing off in the quarter. Per unit EBITDA came to INR 5.08/scm (vs. INR 4.71/5.84 per scm in 4QFY20/3QFY21). We expect per unit EBITDA of INR 6.0/6.2/scm in FY22/23E.

Change in estimates: We raise our FY22/23E EPS estimates by 1.7/4.3% each to INR 25.8/30.6 to factor in the overall performance in FY21, and a better per unit EBITDA assumption for FY22/23E.

DCF-based valuation: Our target price of INR 655 is based on Mar-23E free cash flows (WACC 10%, terminal growth rate 3.0%). The stock is currently trading at 17.7x FY23E EPS.

Shares of Gujarat Gas Ltd was last trading in BSE at Rs.566.7 as compared to the previous close of Rs. 540.2. The total number of shares traded during the day was 1083034 in over 30060 trades.

The stock hit an intraday high of Rs. 578 and intraday low of 544.25. The net turnover during the day was Rs. 615262553.

Source : Equity Bulls

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