Margins dip on high cost LNG; volume to improve
Gujarat Gas Company Ltd’s (GGAS) 1QC13 results on operational front were in-line
with SSLe on lower volume and higher LNG cost. Net sales of the company
increased 18.9% YoY and 0.8% QoQ to Rs7.6bn (in-line with SSLe of Rs7.5bn) led
by improved realisation. On February 1, 2013, GGAS took ~4.2% price hike in
industrial segment and 8.5% in CNG. However, due to increased LNG cost, the
blended gas cost increased 34.8% YoY and 9.1% QoQ to Rs24.4/scm (LNG prices
were high up to US$20/mmbtu in January – February) leading gross margin to dip to
Rs4.5/scm compared to Rs5.7/scm in 4QC12 (SSLe Rs4.3/scm). EBITDA declined
35.6% QoQ to Rs672mn. With higher other income, decline in PAT was limited to
Rs595mn (declined 15.6% QoQ).
Gas sales volume declined 16.2% YoY and 2.2% QoQ to 264mmscm due to lower
volumes in industrial segment as gas cost was high.
Outlook and valuation: Rupee depreciation, steep rise in global LNG prices and
economic slowdown, impacted GGAS’s gas sales volume in C12. 1QC13 too
witnessed volume pressure due to high cost LNG. However, now the LNG prices
have softened and the company expects sales volume to pick up. Margins are also
expected to improve from hereon in view of price hikes. Bottom line of the company
is expected to remain sub-dued for next two years on lower sales volume; however, in
long term the company plans to improve volume to increase bottom line. We have
build in sales volume of 3/3.2mmscmd in C13/C14 respectively.
GGAS received authorization from the Petroleum and Natural Gas Regulatory Board
(PNGRB) for the city gas distribution areas of Surat, Bharuch and Ankleshwar. The
company has filed tariff application with PNGRB for its transmission pipeline.
However, due to high ROE of over 30%, the company is vulnerable to tariff reduction
from PNGRB, as was ordered for Indraprastha Gas.
At CMP, the stock seems to factor in all negatives. We expect better financial
performance of the company going forward with gas sales volume to pick up
gradually. We have valued the stock on 12xC14e earnings and recommend HOLD
rating on the stock with a revised target price of Rs272.
No comments:
Post a Comment