gujarat gas, 2q cy 2013

7/27/2019 Gujarat Gas, 2Q CY 2013

1/10

Please refer to important disclosures at the end of this report 1

Quarterly highlights (Consolidated)Y/E Dec. (` cr) 2QCY2013 2QCY2012 % chg (yoy) 1QCY2013 % chg (qoq)Net operating income 751 772 (2.7) 768 (2.2)EBITDA 156 83 87.4 72 115.8

EBITDA margin (%) 20.8 10.8 999bp 9.4 1136bp

Adj. PAT 101 53 91.1 59 70.3Source: Company, Angel Research

Gujarat Gas (GGAS) reported a strong set of results for 2QCY2013 on the back

of higher realizations coupled with lower costs. However, we maintain ourNeutral rating on the stock.Top-line decreases by 2.7% due to lower volumes: The company reported a2.7% decline in top-line as volumes declined by 17.3% yoy to 239mmscm.

Lower volumes were partially offset by higher realizations which grew by 17.9%

to `31.2/scm.

Lower gas costs boost EBITDA: The cost of gas sold decreased by 14.5% yoy to`542cr which led to the EBITDA increasing by 87.4% yoy to `156cr. The

companys other income also increased by 52.3% yoy to `13cr which led to the

net profit increasing by 91.1% yoy to `101cr.

Outlook and valuation: The companys volumes have declined gradually duringthe past one year on account of higher price of spot LNG and lower production

from the KG D6 block. Going forward, we believe that high price of LNG will

continue to impact 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 8.6x and 8.4x CY2013E and CY2014E

earnings, respectively. Given the regulatory overhang, we maintain our Neutralrating on the stock.Key financials (Consolidated)Y/E Dec. (` cr) CY2011 CY2012 CY2013E CY2014ENet sales 2,419 3,096 3,316 3,460% chg 30.8 28.0 7.1 4.3

Net profit 273 286 290 296% chg 5.2 4.5 1.3 2.1

OPM (%) 16.5 13.2 12.8 12.6

EPS (`) 21.3 22.3 22.6 23.1P/E (x) 9.2 8.7 8.6 8.4

P/BV (x) 3.2 2.6 2.3 2.0

RoE (%) 33.4 32.6 28.2 25.6RoCE (%) 29.5 27.7 25.0 23.3

EV/Sales (x) 0.8 0.7 0.6 0.5

EV/EBITDA (x) 5.0 5.1 4.7 4.0

Source: Company, Angel Research; Note: CMP as of August 8, 2013

NEUTRALCMP `195

Target Price -

Investment Period -

Stock Info

Sector

Net Debt (`cr) (429)

Bloomberg Code

Shareholding Pattern (%)

Promoters 65.1

MF / Banks / Indian Fls 2.0

FII / NRIs / OCBs 15.3Indian Public / Others 17.7

Abs. (%) 3m 1yr 3yr

Sensex (6.0) 6.8 3.6

GGAS (23.1) (36.9) (39.0)

Oil & Gas

Avg. Daily Volume

Market Cap (`cr)

Beta

52 Week High / Low

Face Value (`)

BSE Sensex

Nifty

Reuters Code

2

18,789

5,566

GGAS.BO

GUJS@IN

2,498

1

353/159

9,266

Bhavesh ChauhanTel: 022- 3935 7800 Ext: [email protected]

Vinay RachhTel: 022- 39357600 Ext: 6841

[email protected]

Gujarat GasPerformance Highlights

2QCY2013 Result Update | Oil & Gas

August 10, 2013

7/27/2019 Gujarat Gas, 2Q CY 2013

2/10

Gujarat Gas | 2QCY2013 Result Update

August 10, 2013 2

Exhibit 1:2QCY2013 performance

Y/E Dec. (` cr) 2QCY2013 2QCY2012 % chg (yoy) 1QCY2013 % chg (qoq) CY2012 CY2011 % chg (yoy)Net Operating Income 751 772 (2.7) 768 (2.2) 3096 2419 28.0COGS 542 634 (14.5) 644 (15.9) 2483 1840 35.0Total operating expenditure 595 689 (13.6) 696 (14.5) 2688 2022 33.0

EBITDA 156 83 87.4 72 115.8 408 398 2.5EBITDA Margin (%) 20.8 10.8 9.4 13.2 16.4

Other Income 13 8 52.3 26 (51.7) 67 56 18.8

Depreciation 19 16 19.2 19 0.5 65 60 8.0

Interest - - - - -

PBT 150 76 97.8 80 88.3 407 393 3.5PBT Margin (%) 19.9 9.8 10.4 13.1 16.3

Total Tax 48 23 112.3 20 143.2 120 118 1.5

% of PBT 32.3 30.1 25.0 29.5 30.1

PAT 101 53 91.6 60 70.0 287 273 5.1Minority interest - - - 1 1 (25.8)

Adj. PAT 101 53 91.1 59 70.3 286 274 4.6PAT Margin (%) 13.5 6.9 7.7 9.2 11.3

Source: Company, Angel Research

Top-line decreases by 2.7% yoy due to lower volumes: The company reported a2.7% decline in top-line due to a decline in volumes by 17.3% yoy to 239mmscm.

Lower volumes were partially offset by higher realizations which grew by 17.9% to

`31.2/scm.

Exhibit 2:Volumes declined to 239mmscm....

314 304289 295

270 264239

-

10.0

20.0

30.0

40.0

0

50

100

150

200

250

300

350

4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13

(`/scm

(mmscm)

Gas volumes Avg realization (RHS)


Exhibit 3:.... leading to top-line declining by 2.7%

26.8

36.8

31.928.0

17.1

6.1

(2.7)(8.0)

(4.0)

-

4.0

8.0

12.0

16.0

20.0

24.0

28.0

32.0

36.0

40.0

-

100

200

300

400

500

600

700

800

900

4QCY11 2QCY12 4QCY12 2QCY13

(%)

(`cr)

Operating revenues Operating revenues growth (RHS)


Lower gas costs boost EBITDA: The cost of gas sold decreased by 14.5% yoy to`542cr which led to the EBITDA increasing by 87.4% yoy to `156cr. The

companys other income also increased by 52.3% yoy to `13cr which led to the net

profit increasing by 91.1% yoy to `101cr.

7/27/2019 Gujarat Gas, 2Q CY 2013

3/10


August 10, 2013 3

Exhibit 4:Average cost of gas stood at 22.7/scm

2.3 3.9 4.66.1 5.7

4.5

8.6

18.2

19.6

21.9 22.0 22.424.4

22.7

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0


(`/scm)

Avg. blended margin Avg. gas cost


Exhibit 5:Operating margins increased to 20.8%

4.6

10.610.8

16.4 14.5

9.4

20.8

3.0

8.0

13.0

18.0

23.0

-

20

40

60

80

100

120

140

160

180


(%)

(`cr)

Operating Profit Operating Margins (RHS )


Exhibit 6:Net Profit increased by 91.1% yoy

(69.7)

(10.9)

(44.8)

24.8

181.9

(7.1)

91.1

(100.0)(80.0)

(60.0)(40.0)(20.0)-20.040.060.080.0100.0120.0140.0160.0180.0200.0

-

20

40

60

80

100

120


(%)

(`cr)

PAT PAT growth (RHS)


Investment arguments

Expensive RLNG to mute volume growth: Over the past one year, there has been adecline in gas production from KG-D6. The company is ensuring that the shortfall

in volume is partially compensated by higher RLNG procurement which is however,

expensive and not feasible for several of GGASs customers. Hence, we expectvolume growth to remain muted over the coming two years.

Regulatory overhang to persist:After the verdict of the Delhi High Court, thecompanys marketing margin remains outside the purview of PNGRB. However,

PNGRB has indicated that it aims to regulate the marketing margins charged by

the utilities. This could potentially impact GGASs tariffs and margins adversely in

case there is a cap on marketing margin.

7/27/2019 Gujarat Gas, 2Q CY 2013

4/10


August 10, 2013 4

Outlook and valuation

The companys volumes have declined gradually during the past one year on

account of higher price of spot LNG and lower production from the KG D6 block.Going forward, we believe that high price of LNG will continue to impact 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 8.6x and 8.4x CY2013E and CY2014E earnings, respectively. Given the

regulatory overhang, we maintain our Neutral rating on the stock.Exhibit 7:Key assumptions

Particulars CY2013E CY2014ESales volumes (mmscm) 990 1,029

Blended Realisation (`/scm) 33.0 33.2

Gas Purchase cost (`/scm) 26.5 26.7


Exhibit 8:Angel EPS forecast vs consensus

Angel Forecast Bloomberg Consensus Variation (%)CY2013E 22.6 22.3 1.5CY2014E 23.1 22.6 2.2


Exhibit 9:One-year forward P/E

0

50

100

150

200

250

300

350

400

450

500

Feb-08

May-08

Aug

-08

Nov-08

Feb-09

May-09

Aug

-09

Nov-09

Feb-10

May-10

Aug

-10

Nov-10

Feb-11

May-11

Aug

-11

Nov-11

Feb-12

May-12

Aug

-12

Nov-12

Feb-13

May-13

Aug

-13

(`)

7x 10x 13x 16x 19x


7/27/2019 Gujarat Gas, 2Q CY 2013

5/10


August 10, 2013 5

Exhibit 10: Recommendation summary

Company CMP TP Reco. Mcap Upside P/E (x) P/BV (x) EV/EBITDA (x) RoE (%) RoCE (%)(`) (`) (` cr) (%) CY13E CY14E CY13E CY14E CY13E CY14E CY13E CY14E CY13E CY14E

GGAS 195 - Neutral 2,498 - 8.6 8.4 2.3 2.0 4.7 4.0 28.2 25.6 25.0 23.3PLNG 118 167 Buy 8,853 42 7.9 7.0 1.7 1.4 4.8 4.2 22.9 21.5 21.6 22.9

IGL 264 - Neutral 3,693 - 9.9 8.7 2.1 1.7 4.6 3.8 22.7 21.8 26.6 27.8

GSPL 51 68 Buy 2,886 33 5.1 4.5 0.8 0.7 2.1 1.6 17.3 16.8 19.1 19.1

*For IGL, PLNG and GSPL: CY13E=FY14E and CY14E=FY15E

Company background

GGAS is one of the largest private sector players in natural gas transmission and

distribution business in Gujarat. GGAS became a subsidiary of the BG Group in

1997 as the latter acquired more than 60% shares from Mafatlal group and others

and later increased its stake to 65%. During the last five years, the company hasexpanded in southern Gujarat and has exclusive distribution rights in the

industrialized cities of Surat, Ankleshwar and Bharuch. Currently, it supplies gas to

more than 349,000 domestic, commercial and industrial customers. The

companys pipeline network is spread over 3,700km. During October 2012,

Gujarat State Petroleum Corporation announced to acquire the entire 65%

BG Groups stake in GGas.

7/27/2019 Gujarat Gas, 2Q CY 2013

6/10


August 10, 2013 6

Profit & loss statement (Consolidated)

Y/E December (` cr) CY09 CY10 CY11 CY12 CY13E CY14ETotal operating income 1,420 1,849 2,419 3,096 3,316 3,460% chg 9.1 30.3 30.8 28.0 7.1 4.3Total Expenditure 1,140 1,432 2,021 2,688 2,892 3,023

Net Raw Materials 1,003 1,286 1,840 2,484 2,626 2,745

Other Mfg costs 20 97 121 140 56 56

Personnel 45 50 61 64 76 80

Other 72 (2) (1) - 134 142

EBITDA 280 418 398 408 424 437% chg 18.8 49.4 (4.7) 2.6 3.7 3.1

(% of Net Sales) 19.7 22.6 16.5 13.2 12.8 12.6

Depreciation & Amortization 47 54 60 66 76 82

EBIT 232 363 338 343 348 355% chg 20.0 56.5 (7.0) 1.3 1.6 2.0

(% of Net Sales) 16.4 19.7 14.0 11.1 10.5 10.3

Interest & other Charges 0 0 1 2 1 1

Other Income 27 22 56 67 69 70

(% of PBT) 10.3 5.8 14.4 16.4 16.5 16.6

Share in profit of Associates - (2.0) (1.0) - - -

Recurring PBT 259 383 392 408 416 424% chg 10.3 48.2 2.2 4.1 1.9 2.1

Extraordinary Expense/(Inc.) - (2.0) (1.0) - - -

PBT (reported) 259 385 393 408 416 424Tax 84 124 118 121 125 127

(% of PBT) 32.3 32.3 30.1 29.7 30.0 30.0

PAT (reported) 175 261 275 287 291 297Add: Share of earnings of asso. - (2) (1) - - -

Less: Minority interest (MI) 1 1 1 1 1 1

Prior period items - (2) (1) - - -

PAT after MI (reported) 174 260 273 286 290 296ADJ. PAT 174 262 274 286 290 296% chg 8.4 50.3 4.8 4.2 1.3 2.1

(% of Net Sales) 12.3 14.2 11.3 9.2 8.7 8.5

Basic EPS (`) 13.6 20.1 21.2 22.3 22.6 23.1Fully Diluted EPS ( ) 13.6 20.1 21.3 22.3 22.6 23.1% chg 8.4 48.0 5.7 4.9 1.3 2.1

7/27/2019 Gujarat Gas, 2Q CY 2013

7/10


August 10, 2013 7

Balance sheet (Consolidated)

Y/E December (` cr) CY09 CY10 CY11 CY12 CY13E CY14ESOURCES OF FUNDSEquity Share Capital 28 29 30 29 29 29Preference Capital 14 14 14 - - -

Reserves& Surplus 738 815 758 937 1,061 1,192

Shareholders Funds 780 859 803 965 1,090 1,220Minority Interest 5 6 7 9 11 12

Total Loans 155 207 - - - -

Deferred Tax Liability 56 67 74 88 88 88

Long term provisions 5 - - -

Other Long term liabilities 254 269 269 269

Total Liabilities 996 1,140 1,143 1,331 1,457 1,589APPLICATION OF FUNDSGross Block 914 1,019 1,108 1,291 1,402 1,513

Less: Acc. Depreciation 333 383 445 502 578 659

Net Block 581 636 664 789 824 853Capital Work-in-Progress 136 138 126 113 132 151

Goodwill - - - - -

Long term loans & Advances 37 20 20 20

Other Non-current assets 1 1 1 1

Investments 448 583 501 387 387 387Current Assets 179 188 244 270 413 723

Cash 8 9 14 42 98 364

Loans & Advances 26 19 21 8 29 30

Other 145 159 209 220 286 329

Current liabilities 348 405 429 249 319 546

Net Current Assets (168) (217) (185) 22 93 177Mis. Exp. not written off 0 - - - - -

Total Assets 996 1,140 1,143 1,331 1,457 1,589

7/27/2019 Gujarat Gas, 2Q CY 2013

8/10


August 10, 2013 8

Cash Flow Statement (Consolidated)

Y/E December (` cr) CY09 CY10 CY11 CY12 CY13E CY14EProfit before tax 259 383 393 409 416 424

Depreciation 47 54 60 66 76 82Change in Working Capital (30) (15) 6 (12) (15) 182

Less: Other income (21) (14) (44) (27) (69) (70)

Direct taxes paid (78) (124) (111) (107) (125) (127)

Cash Flow from Operations 178 285 304 330 282 490(Inc.)/ Dec. in Fixed Assets (152) (112) (111) (167) (130) (130)

(Inc.)/ Dec. in Investments (63) (123) 53 123 - -

Other income 18 21 38 27 69 70

Cash Flow from Investing (197) (215) (20) (18) (61) (60)Issue of Equity - - - (14) - -

Inc./(Dec.) in loans 28 52 49 14 - -

Dividend Paid (Incl. Tax) (24) (121) (328) (284) (165) (165)

Cash Flow from Financing 4 (69) (279) (284) (165) (165)Inc./(Dec.) in Cash (15) 1 5 28 56 265

Opening Cash balances 22 8 9 14 42 98Closing Cash balances 8 9 14 42 98 364

7/27/2019 Gujarat Gas, 2Q CY 2013

9/10


August 10, 2013 9

Key ratios

Y/E December CY09 CY10 CY11 CY12 CY13E CY14EValuation Ratio (x)P/E (on FDEPS) 14.3 9.7 9.2 8.7 8.6 8.4P/CEPS 11.3 8.0 7.5 7.1 6.8 6.6

P/BV 3.3 3.0 3.2 2.6 2.3 2.0

Dividend yield (%) 4.1 6.2 5.1 5.1 5.6 5.6

EV/Sales 1.5 1.0 0.8 0.7 0.6 0.5

EV/EBITDA 7.4 4.7 5.0 5.1 4.7 4.0

EV/Total Assets 2.1 1.7 1.7 1.6 1.4 1.1

Per Share Data (`)EPS (Basic) 13.6 20.1 21.2 22.3 22.6 23.1

EPS (fully diluted) 13.6 20.1 21.3 22.3 22.6 23.1

Cash EPS 17.3 24.3 25.9 27.4 28.5 29.4

DPS 8.0 12.0 10.0 10.0 11.0 11.0

Book Value 59.7 65.9 61.5 75.3 85.0 95.2

Dupont Analysis (%)EBIT margin 16.4 19.5 13.9 11.1 10.5 10.3

Tax retention ratio 67.7 67.6 69.8 70.3 70.0 70.0

Asset turnover (x) 1.5 1.7 2.1 2.6 2.5 5.1

ROIC (Post-tax) 16.8 23.1 20.8 19.9 18.4 36.6

Cost of Debt (Post Tax) - - - - - -

Leverage (x) - - - - - -

Operating ROE 16.8 23.1 20.8 19.9 18.4 36.6

Returns (%)ROCE (Pre-tax) 24.4 33.8 29.5 27.7 25.0 23.3

Angel ROIC (Pre-tax) 29.0 39.2 33.8 31.4 29.0 57.9

ROE 23.6 32.0 33.4 32.6 28.2 25.6

Turnover ratios (x)Asset Turnover (Gross Block) 1.7 1.9 2.3 2.6 2.5 2.4

Inventory / Sales (days) 5 3 2 2 3 2

Receivables (days) 27 25 23 21 23 26

Payables (days) 62 52 30 15 17 34

WC cycle (ex-cash) (days) (34) (40) (32) (13) (1) (0)

Solvency ratios (x)Net debt to equity (0.6) (0.7) (0.7) (0.4) (0.4) (0.6)

Net debt to EBITDA (1.5) (1.3) (1.3) (1.0) (1.1) (1.7)

Interest Coverage (EBIT/Int.) 1,706.9 782.3 226.1 216.8 347.9 354.9

7/27/2019 Gujarat Gas, 2Q CY 2013

10/10


August 10, 2013 10

Research Team Tel: 022 - 3935 7800 E-mail: [email protected] Website: www.angelbroking.com

DISCLAIMERThis document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment

decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should

make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the

companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine

the merits and risks of such an investment.

Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this

document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way

responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.

Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot

testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.

While Angel Broking Pvt. Limited endeavours to update on a reasonable basis the information discussed in this material, there may be

regulatory, compliance, or other reasons that prevent us from doing so.

This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,

redistributed or passed on, directly or indirectly.

Angel Broking Pvt. Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking

or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report orin the past.

Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from

or in connection with the use of this information.

Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to thelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates mayhave investment positions in the stocks recommended in this report.

Disclosure of Interest Statement Gujarat Gas

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

gujarat gas, 2q cy 2013

Documents