>GUJARAT GAS: BG stake sale to keep the stock price in check

Gujarat Gas (GGAS) reported dismal set of numbers for Q4CY11 with bottomline declining by 70.0% YoY and 69.4% QoQ to Rs247mn on the back of rupee depreciation and higher spot LNG prices. Since GGAS’ entire sourcing is dollar denominated, rupee depreciation took a toll on the operating performance, further hampering profitability. The company hiked CNG prices marginally during the quarter but did not raise prices for other segments. Q1CY12 would be a better quarter as the company raised prices for all the segments (industrial retail, PNG etc.) excluding CNG. Devoid of any new natural gas sourcing, distribution volumes remained stable during CY11 on a YoY basis. We have thus lowered our earnings for the company and downgraded our rating to Hold from Buy. However, we believe that the near term stock performance would be dependent on the pricing for BG stake sale.


■ Realisations jump sequentially owing to price hikes: GGAS’ revenues remained almost stable QoQ at Rs6.5bn but average realisations jumped 3.5% QoQ at Rs20.4./scm due to the full effect of the price hikes effected during Q3CY11. Distribution volumes declined 3.7% QoQ to 3.4mmscmd due to seasonality factor.


■ EBITDA/scm plummets to Rs0.7/scm: GGAS’ Q4 performance was impacted by over 16% QoQ jump in gas sourcing cost. Gas sourcing cost was higher due to rupee depreciation and higher spot LNG prices. Since GGAS’ entire gas sourcing is dollar denominated, the increase in sourcing cost devoid of any hike in gas prices led to EBITDA/scm declining to Rs0.7/scm from Rs3.3/scm in Q3 and Rs3.9/scm in Q4CY11. Operating profit thus plummeted by a massive 74.6% QoQ and by 76.8% YoY to Rs300mn.

■ Higher other income supports bottom-line: Depreciation was in line at Rs155mn while other income jumped by 86.3% QoQ and 170.0% YoY at Rs209mn thus supporting the bottom-line. Higher gas sourcing cost led to GGAS’ worst ever quarterly performance for Q4 with PAT at Rs247mn declining 69.4% QoQ and 700% YoY.


■ Stock price to follow news flow on BG stake sale: GGAS’ Q4 performance was an aberration due to higher natural gas sourcing cost which is likely to reverse in Q1CY12 as the rupee is appreciating. Spot LNG prices have soothed and price hikes in industrial retail, PNG etc. are in place. We believe that concern still exists on gas sourcing as the company has not been able to show any serious increase in YoY distribution volumes. We have thus lowered our volume and EBITDA/ scm estimates for CY12E and CY13E. We have thus downgraded the stock to Hold from Buy based on our new estimates. However, we believe that the near term stock performance would be governed by news flow on BG stake sale.

RISH TRADER