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Centrum Broking
Gujarat Gas (Buy)
CMP: ₹161.55
Target: ₹205
Gujarat Gas (GGL) reported another strong y-o-y growth in profitability with PAT of ₹120 crore growing 77 per cent y-o-y and EBITDA of ₹250 crore (+14 per cent y-o-y). However, the strong base of Q3 (EBITDA/PAT grew 61/149 per cent y-o-y) and price cuts in industrial segment have driven a q-o-q decline of 21 per cent/16 per cent in EBITDA/PAT. Seasonal factors and lower industrial demand have seen volumes also decline q-o-q (1 per cent to 6.5 mmscmd), which is also 4 per cent lower y-o-y. Gross margins of ₹7.6/scm are down ₹0.56/scm q-o-q but they have improved sharply y-o-y. FY19 EBITDA/PAT of ₹990/430 crore grew 10 per cent/47 per cent y-o-y, with volumes of 6.5 mmscmd growing +5 per cent y-o-y.
Valuation and risks: The aforementioned volume growth coupled with our expectation of a steady margin expansion as well drives EPS CAGR of 38 per cent over FY18-21E. Our estimates imply a CAGR of 16/1/6 per cent in volumes/gross margins and EBITDA/scm over FY19-21E. Given the longer term (and back ended) prospects for GGL and the steady state nature of cash flows from this business, we value GGL using DCF till FY34E, which delivers a price target of ₹205/share, 28 per cent upside.
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