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Gujarat Gas (GGAS) - Qtr. Update - Dated - May 06, 2013




Axis Capital Limited


06 May 2013





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Gujarat Gas’ (GGAS’) performance was impacted due to higher gas cost and muted gas sales volume. Despite price hikes taken in Feb ’13, higher proportion of costlier LNG in gas sourcing mix led to decline in gross margin. Volume remained flat QoQ as industrial volumes continued to exhibit a churn at higher gas prices. However, margin is likely to recover over next 2 quarters due to (a) price hikes in Feb and Apr ’13, (b) softening LNG prices, and (c) likely resumption in cheaper PMT gas supplies. Volume to remain muted due to (a) industrial users shifting to grid power due to cost advantage and (b) drop in industrial utilization due to economic slowdown. Strategy of new promoter (Gujarat State Petroleum Corporation) and likely synergy benefits would be key parameters to watch for. We have a BUY rating on GGAS with TP of Rs 320, which implies 29% upside from CMP of Rs 247. At CMP, the stock trades at 12x CY13E EPS of Rs 20.2 and 13x CY13E EPS of Rs 19.6. Quarterly highlights  PAT at Rs 593 mn was in line with our estimate but lower than Street estimate of Rs 644 mn. Cost of gas rose 9% QoQ to Rs 24.4/scm due to sharp rise in landed LNG costs in March and continued higher proportion of costlier LNG in gas sourcing mix. This led to ~20% QoQ decline in gross margin to Rs 4.7/scm  Sales volume dropped to lowest in last 15 quarters. Industrial users took opportunity of seasonally weak quarter to shift to grid power due to cost advantage. Lower utilization in user industry due to overall slowdown in capital spending also affected volumes. Volumes are expected to remain flat in H1CY13, and may recover in Q3CY13 due to festive demand (seasonal)  Domestic gas volumes accounted for ~50% of gas sourcing mix (PMT: 35%, Cairn: 10%, APM: 5%). Share of costlier RLNG rose to 50% (47% in Q4CY12) Regards, Amit Mishra, CFA (Sr VP – Energy) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1142 Prashant Tarwadi (AVP – Energy) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1113

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