Sharekhan's research report on Gujarat Gas
Q3FY23 PAT of Rs. 371 crore (down 8% q-o-q) significantly beat our estimates as EBITDA margin exceeded expectations, offsetting the miss in I-PNG sales volumes. EBITDA margins of Rs. 8.7/scm was 61% above our estimate, reflecting strong gross margin of Rs. 12.8/ scm (marginal decline of only 1% q-o-q) despite price cut for I-PNG. Gas sales volume disappointed with a 4% q-o-q decline to 7.3 mmscmd given continued pressure on I-PNG volume (down 9.4% q-o-q). CNG volumes were up by 5% q-o-q; D-PNG declined by 3% q-o-q. Recent sharp surge in propane prices has narrowed price differential between I-PNG and propane; trends suggests that propane price is likely to be at premium to I-PNG. This trend if sustained bodes well for I-PNG volume recovery for Gujarat Gas (GGAS).
Outlook
GGAS’s valuation of 21x/16x FY24E/FY25E EPS partly factors in volume concerns and we expect volumes/earnings to recovery sharply with likely normalisation of spot LNG prices. We maintain a Buy on GGAS with an unchanged PT of Rs. 560
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