The rising sales volumes from the Morbi industrial cluster in Gujarat continue to drive the sales volumes for the company. The need for cleaner and cheaper fuel alternatives will further drive expansion in sales to more such industrial clusters.
Gujarat Gas stock prices that have more than doubled since March lows continued to trade near fresh highs seen recently. The company can be the biggest beneficiary amongst the city gas distribution companies (CGDs) if gas sales come under the ambit of goods and service tax regime. This is due to its strong exposure to institutional sales. The firm has also seen sales rebound with gas consumption catching pace post easing of lockdowns as was visible in the third-quarter results posted by the company recently.
In Q3 FY21, Gujarat Gas reported Ebitda (earnings before interest, tax, depreciation and amortization) and net profits at ₹610 crore (up 66% y-o-y) and ₹390 crore (up 99.6% y-o-y) ahead of our and street estimates, on stronger than estimated sales volume and lower gas cost" said analysts at Antique Stock Broking.
The company’s gas sales volumes were up 23% year-on-year at 11.4 mmscmd (million metric standard cubic meter per day). These should further rise in Q4 FY21 on the back of promising January sales growth seen by the company, say analysts. While industrial volume (80% of sales volumes) surged 27% year-on-year, compressed natural gas sales too rose 2% y-o-y. On a sequential basis, they were up 16% and 20% respectively.
The rising sales volumes from the Morbi industrial cluster in Gujarat continue to drive sales volumes for the company. The need for cleaner and cheaper fuel alternatives will further drive expansion in sales to more such industrial clusters.
The company has added 83 new CNG stations in the current fiscal to a total of 484. It is planning to add 150 CNG stations each year, 3x earlier level, 50% plus of which will be directly controlled and 75% of which will be in new geographies say, analysts. This can continue driving volumes phenomenally.
The company currently continues to flow total gas volume above 11.50 mmscrnd as against FY20 average sales of 9.44 mmscrnd.
Over the past five years, the company has posted volume growth of 11% annually and analysts at Motilal Oswal Financial Services project the same volume growth over the next two years as well.
If gas is included under GST, the company would benefit from increased volume offtake, as industrial consumers would be able to take input tax credits, thus lowering their gas feedstock cost. Gujarat Gas will be able to take the tax credit on operating expenses and capex as well.
The stock currently is trading at 24.6 times one-year forward earnings estimates.