Gujarat Gas Ltd. share price target

Oil & Gas City gas distribution (CGD) companies are expected to deliver robust volume growth in near term owing to favourable global macro scenario as well as the conducive regulatory policies in India. Their capex intensity is likely to remain high in the medium to near term. Benign LNG prices and focus on CNG market will enable GGL to sustain volumes and expand margins. For IGL, expansion of network in existing and new GAs will ensure volume growth of ~11-12% over FY21-23. OIL has guided for a flattish crude oil and gas production while ONGC expects ~6-7% YoY growth in the gas production over FY20-22E. ONGC also indicated that the proportion of high priced gas will jump by 10% to 14%. Chemicals Softer raw material prices and favourable market for Acetonitrile is enabling Alkyl Amines to maintain stronger margins. Recovery in the pharmaceutical and agrochemical sector (together comprise ~70% of sales mix) will result in volume growth of ~10-15% YoY in FY20. Slowdown in the auto industry will continue to impact the demand for rubber and rubber chemicals for the next few of quarters, at least. Wide applicability of Apcotex's products shielded the impact of slowdown to some degree but NOCIL will continue to witness sluggish demand. We hosted the Oil & Gas and Chemicals Investor Forum in Mumbai with 13 corporates/experts participating in the event.

We believe that GGL will pass on partial benefit of falling RMC to industrial customers. This will ensure not only sustainability of volumes but boost gas demand. This is particularly true for Morbi tile manufacturers (gas cost is ~20% of total tile RMC). Operating leverage led by increased volumes will allow GGL to maintain healthy per unit EBITDA (>Rs 4.3/scm over FY20-22). We remain positive on GGL as it will generate OCF yield of almost 9.7% and RoE of >22% over FY21/22E. Valuations are contextually low at 16.8/14.7x FY21/22E EPS. The sustainability of volume enables us to keep our faith intact on GGL. We maintain BUY with a target price of Rs 261/sh (20x Sep-21E EPS).

The quarter witness robust increase of 40.1% YoY in volumes to 9.3 mmscmd. Industrial volumes were at 7.2 mmscmd vs. 4.6 mmscmd YoY and 7.1 mmscmd QoQ due to volume impact from the Morbi industrial area. Morbi industrial volumes were at ~5 mmscmd for the quarter i.e. 70% of industrial volumes. CNG volumes at 1.5 mmscmd showed stable growth, while domestic/commercial PNG volumes came at ~0.7 mmscmd. Gujarat Gas continued to benefit from latest National Green Tribunal (NGT) order as industrial sales volume remained robust. Going forward, the company plans...

the NGT ban at Morbi volumes from 1QFY20. PBT stood at INR6.2b (v/s INR2.5b in 1HFY20), while PAT came in at INR7.5b (v/s INR1.6b in 1HFY20). EBITDA/scm was in line with our estimate at INR4.3 (v/s INR2.6 in 2QFY19). EBITDA/scm normalized (from highest ever in 1QFY20 at INR5.6), as the company took a PNG I/C price cut of INR2.5/scm during the start of the quarter. Spot LNG prices averaged USD5.1/mmbtu in 2QFY20 (v/s USD10.4 in 2QFY19 and USD5.4 in 1QFY20). Total volumes stood at 9.3mmscmd (40% YoY)....

Gujarat Gas (GUJGA) reported Q2 FY20 earnings below estimates at Rs 2.2bn (Adjusted for Rs 2.9 bn tax write-back; +5.3x YoY).

To accommodate the stellar Q1FY20 performance, we raise EPS estimates for FY20/21E from Rs 8.8/11.1 to Rs 11.1/11.7. We expect (1) Low LNG prices to boost industrial volumes; (2) The development of CGD ecosystem across Gujarat to push CNG volumes. We remain positive on the company as it generates OCF yield of almost 9.5% and RoE of >25% over FY21/22E. Valuations are contextually unreasonable at 15.4/14.6x FY21/22E EPS. Post the outstanding Q1FY20 performance, we maintain BUY on GGL. Our target is Rs 246/sh (20x Jun-21E EPS).

The quarter witnessed a robust increase of 42.2% YoY in volumes to 9.2 mmscmd. Industrial volumes were at 7.1 mmscmd vs. 5.1 mmscmd YoY and 4.3 mmscmd QoQ due to volume impact from the Morbi industrial area. Morbi industrial volumes were at ~5 mmscmd for the quarter (2-2.5 mmscmd volumes last year) i.e. 70% of industrial volumes. CNG volumes at 1.5 mmscmd showed stable growth while domestic/commercial PNG volumes were at ~0.6 mmscmd. The volume outlook remains robust as National Green Tribunal (NGT) has ordered a ban on coal based gasifiers,...

Gujarat Gas volumes were higher than expected at 833 mmscm as against our estimates of 792 mmscm. Strong revenues at ` 26.1 bn was driven by 43%YoY gas volumes growth. Gross spreads were flat on a sequential basis and higher by 9% on a yearly basis. EBITDA spreads were highest in this quarter at ` 5.6/scm due to lower LNG spot prices. EBITDA spreads increased by 32% YoY and 29% QoQ. With recent strategy of management to focus on volumes, we believe that operating spreads should sustain at ` 4.5/SCM. Overall volumes increased by 43% YoY and 41% QoQ, with...

GUJGA reported strong EBIDTA of INR4.7b (+50% beat; +88% YoY, +84% QoQ), driven by lower sourcing cost. PAT was up 93% YoY at INR2.3b. Total sales volumes were 4% higher than our estimate at 9.2mmscmd (+42% YoY/QoQ), primarily led by higher industrial volumes. EBITDA/scm for the quarter stood at INR5.6 (v/s INR4.2 in 1QFY19 and INR4.3 in 4QFY19). This is the highest-ever EBITDA/scm reported by the company, aided by lower spot LNG prices (average USD5.4/mmbtu in 1QFY20 v/s USD8.9 in 1QFY19 and USD7.4 in 4QFY19)....

Gujarat Gas (GUJGA) reported Q1FY20 earnings well above estimates at Rs 2.3bn (+93% YoY, +2x QoQ), backed by strong volumes of 9.15mmscmd (+42% YoY) and expanded EBITDA margins of Rs 5.6/scm (+32% YoY, +29% QoQ).