Home / Markets / Mark To Market /  Gujarat Gas impresses on margins in Q4; outlook improves

Lower than anticipated gas costs have helped Gujarat Gas Ltd beat Street expectations on earnings before interest, taxes, depreciation and amortization (Ebitda) in the three months ended March (Q4FY22). Standalone Ebitda was 697 crore, surpassing Bloomberg consensus estimate of about 490 crore.

Ebitda per standard cubic metre (scm) in Q4 was 7.8, a sharp improvement from the 2.3 seen in Q3FY22 and 5.1 in Q4FY21. Investors cheered, with the city gas distribution company’s shares closing 6% higher on Wednesday.

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Gujarat Gas’ industrial volumes at 6.7mmscmd (million standard cubic metres a day) in Q4 were muted as demand was subdued. This weighed on overall volumes. In Q4, average gas sales volume were 9.89 mmscmd, lower 18% year-on-year and 13% sequentially.

“Spot LNG (liquefied natural gas) prices were high in Q4, averaging about $31/mmBtu ($35/mmBtu in Q3). Plus, APM (administered pricing mechanism) gas availability was limited as well in the last quarter. Therefore, gas sales were optimized to avoid an increase in prices for customers and to also ensure profitability for the company," said Nitin Tiwari, analyst at Yes Securities, Lower dependence on expensive LNG helped the company shore up its margins during the quarter, he said.

The outlook has improved. The company has said total gas sales volume is now above 10.5 mmscmd. Here, compressed natural gas (CNG) sales are showing healthy growth. Industrial demand from the Morbi cluster is also recovering sequentially. Gujarat Gas has raised prices, which would also support margins.

“While we were already building in a gradual recovery in Morbi volumes over FY23E, we now raise our FY23E Ebitda margin from 4.5/scm to 5/scm also noting FY22 full year Ebitda margin of 5.3/scm is impressive given the tough macro," said a Jefferies India report led by analyst Pratik Chaudhuri.

The broking firm has left its FY24E Ebitda margin unchanged at 5/scm noting potential upside risk in case spot LNG normalizes over the next year. Spot LNG prices have moderated from recent highs, but an increase is a risk for shares of Gujarat Gas. Meanwhile, the stock is still 31.6% away from its 52-week high of 786 seen in August on NSE. To that extent, valuations are reasonable.

The stock is currently trading at almost 22 times estimated earnings for FY24, as per Bloomberg data.

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