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					                                                                                                                   Gujarat Gas Company




                                                                                                                                                                                       Result Update
                                                                                                                               Results inline with expectation

November 4, 2011
                                                                                         ¾ GGCL reported results which were inline with our estimates
Reco                                               Previous Reco
                                                                                            with revenues at Rs.6.5bn and PAT at Rs0.8bn, mainly due to
Buy                                                                             Buy
                                                                                            higher volume growth & better realisation during the quarter
CMP                                                    Target Price
Rs.444                                                                   Rs.481          ¾ EBIDTA at Rs.1.2bn, against Rs.0.9bn, growth of 30.4% YoY.
                                                                                            Margin declined by 587.9.bps to 18% sequentially. Gross
EPS change CY11E/12E (%)                                                 9.7 / 1.1
                                                                                            margin declined by 20% QoQ to Rs4.7/scm
Target Price change (%)                                                         NA
Nifty                                                                      5,266         ¾ Natural gas volume sold during the quarter was 326mmscm,
Sensex                                                                    17,482            growth of 8% QOQ and flat on YoY

Price Performance                                                                        ¾ Given its monopoly in cities of Gujarat, expected volume
(%)                                       1M       3M           6M 12M                      growth plus zero debt and robust business model with no
Absolute                                    5       8            23             15          commodity risk, We maintain BUY rating with TP of Rs.481
Rel. to Nifty                             (5)       11           28             34
Source: Bloomberg
                                                                                         Highlights of the results
Relative Price Chart                                                                     GGCL reported results which were inline with our estimates. Revenue for the quarter
475     Rs                                                                       50
                                                                            %
                                                                                         stood at Rs.6.5bn (against our expectation of Rs.6.1bn), growth of 28.7% YoY, mainly
440                                                                              38      on account of higher volumes plus better realisation led by recent price hike in across
405                                                                              26      the segment. EBITDA during the quarter was at Rs.1.2bn (against our expectation of
370                                                                              14
                                                                                         Rs.1.2bn), growth of 30.4% YoY. During the quarter EBIDTA margin declined by 587bps
                                                                                         QoQ and flat on YoY to 18%, mainly due to high cost of raw material (RLNG).
335                                                                              2
                                                                                         Consequently company reported net profit of Rs.0.8bn (against our expectation of
300
  Nov-10     Jan-11       Mar-11          May-11   Jul-11       Sep-11
                                                                                 -10
                                                                                         Rs.0.8bn), an increase of 41.6% YoY. Natural gas volume sold during the quarter was
                      Gujarat Gas (LHS)             Rel to Nifty (RHS)                   326mmscm, marginal growth of 1% YoY and 8% sequentially.
Source: Bloomberg
                                                                                         Sales realisation has improved by 3.4% QoQ and 25.7% YoY to 19.7/scm,
Stock Details                                                                            led by hike in selling price of Industrial Retail and CNG segment
Sector                                                            Oil & Gas
                                                                                          Average sales realisation stood at Rs.19.7/scm, growth of 25.7% YoY and 3.4% QoQ,
Bloomberg                                                     GGAS@IN                                                                             th
                                                                                         led by hike in selling prices of Industrial Retail (on 30 August 2011, from Rs.16.6/scm
Equity Capital (Rs mn)                                                          257      to Rs.18.3/scm) and CNG segment (from Rs.36.7/kg to Rs39.7/kg currently).
Face Value(Rs)                                                                       2
No of shares o/s (mn)                                                           128      Gross margin declined by 20% to 4.7/scm
52 Week H/L                                                          463/304             Gross margin declined by 20% to 4.7/scm mainly due to higher cost of RLNG. During
Market Cap (Rs bn/USD mn)                                           57/1,156             the quarter cost of raw material, (mainly RLNG) has increased by 27.5% YoY and
                                                                                         13.6% QoQ to Rs.15/scm. RLNG is expected to be a continuing feature in the
Daily Avg Volume (No of sh)                                               68890
                                                                                         company’s gas sourcing mix which will ease the supply concern of the company but it
Daily Avg Turnover (US$mn)                                                      0.6
                                                                                         would face moderate margin pressure compared to previous peck due to high cost of
                                                                                         RLNG. However we believe margin would start picking up from Q1 CY12 onwards
Shareholding Pattern (%)
                                                                                         backed by expected increase in prices of Industrial and CNG segment.
                              Sep-11               Jun-11                Mar-11
Promoters                            65.1              65.1                 65.1
                                                                                         Valuation table
FII/NRI                              16.3              16.1                 16.0
                                                                                         Rs Mn     Net        EBIDTA       APAT   AEPS     EPS      RoE    P/E      EV/      P/
Institutions                              7.6               7.5                 7.6
                                                                                                  Sales    Core     (%)                   (% chg)   (%)            EBIDTA    BV
Private Corp                              2.9               1.6                 1.8
Public                                    8.2               9.6                 9.5      CY09      14197    2795    19.7   1750    13.5      8.4    23.3    33.4    19.1     7.4

Source: Capitaline
                                                                                         CY10      18493    4156    22.5   2590    20.0     48.3    28.9    22.5    12.7     5.7
                                                                                         CY11E     24190    4841    20.0   3275    25.3     26.7    25.2    17.8    10.5     4.4
                                                                                         CY12E     27567    5225    19.0   3451    26.7      5.4    23.8    16.9     9.3     3.6



Dhaval Joshi
dhaval.joshi@emkayglobal.com

+91 22 6612 1282

Emkay Global Financial Services Ltd                                                                                                                                                1
                                                 Gujarat Gas Company                                                                          Result Update

  Result Table
  Rs mn                            Q3 CY10   Q4 CY10   Q1 CY11       Q2 CY11     Q3 CY11         YoY %         QoQ %        9M CY11        9M CY10         YoY %
  Revenue                           5071.0    5123.4      5291.3      5844.6          6528.4          28.7       11.7        17664.2        13109.5          34.7
  Expenditure                       4167.6    3839.8      4202.3      4446.5          5350.5          28.4       20.3        13999.3        10511.6          33.2
  as % of sales                       82.2      74.9          79.4      76.1            82.0
  Consumption of RM                 3806.3    3382.2      3799.3      3995.2          4901.1          28.8       22.7        12695.6         9385.5          35.3
  as % of sales                       75.1      66.0          71.8      68.4            75.1
  Employee Cost                      129.8     140.9         139.9     167.8           138.5           6.7       -17.5         446.2          370.9          20.3
  as % of sales                        2.6       2.7           2.6       2.9             2.1
  Other expenditure                  231.4     316.8         263.1     283.5           310.9          34.3            9.7      857.5          755.2          13.5
  as % of sales                        4.6       6.2           5.0       4.9             4.8
  EBITDA                             903.5    1283.6      1089.0      1398.1          1177.9          30.4       -15.8        3665.0         2597.9          41.1
  Depreciation                       137.1     139.4         142.7     146.6           151.2          10.3            3.1      440.5          394.8          11.6
  EBIT                               766.4    1144.2         946.3    1251.5          1026.7          34.0       -18.0        3224.5         2203.1          46.4
  Other Income                        49.9      74.7          97.3     141.7           100.1      100.9          -29.3         339.1          167.5         102.4
  Interest                             0.4       0.7           0.4       0.3             0.4           0.0            9.1           1.0            4.0       -74.2
  PBT                                815.8    1218.2      1043.2      1392.8          1126.5          38.1       -19.1        3562.5         2366.5          50.5
  Total Tax                          249.9     398.0         316.0     427.0           325.0          30.0       -23.9        1068.0          760.1          40.5
  Adjusted PAT                       565.9     820.2         727.2     965.8           801.5          41.6       -17.0        2494.5         1606.5          55.3
  (Profit)/loss from JV's/Ass/MI         0         0            0          0              0
  APAT after MI                      565.9     820.2         727.2     965.8           801.5          41.6       -17.0        2494.5         1606.5          55.3
  Extra ordinary items                   0         0            0          0              0
  Reported PAT                       565.9     820.2         727.2     965.8           801.5          41.6       -17.0        2494.5         1606.5          55.3
  Reported EPS                         4.4       6.4          5.62       7.5            6.22          41.0       -17.1          19.3           12.5          54.5


  Margins (%)                                                                                         bps         bps                                         bps
  EBIDTA                              17.8      25.1          20.6      23.9            18.0          22.6     -587.9           20.7           19.8          93.1
  EBIT                                15.1      22.3          17.9      21.4            15.7          61.5     -568.5           18.3           16.8         144.9
  EBT                                 16.1      23.8          19.7      23.8            17.3      116.7        -657.5           20.2           18.1         211.6
  PAT                                 11.2      16.0          13.7      16.5            12.3      111.8        -424.8           14.1           12.3         186.8
  Effective Tax rate                  30.6      32.7          30.3      30.7            28.9      -178.5       -180.7           30.0           32.1        -213.9


                                                Revised estimates
                                                We have tweaked our estimates marginally for CY11E & CY12E based on the recent hike in
                                                selling price of Industrial retail and CNG prices and reduced our volume assumption.

                                                 Rs. Mn                                  CY11E                                            CY12E
                                                                               Old             New           % Chg           Old            New            % Chg
                                                 Net Sales                 22484           24190               7.6          26426          27567               4.3
                                                 EBIDTA                        4688            4841            3.3          5529           5225               -5.5
                                                 EBIDTA %                      20.9            20.0     -83.8 bps            20.9           19.0         -196.9bps
                                                 PAT                           2982            3274            9.8          3412           3451                1.1
                                                 EPS                           23.1            25.3            9.7           26.4           26.7               1.1
                                                 Volumes (mmscmd)              3.52            3.43            -2.6          3.81           3.62              -5.0


                                                Valuation
                                                During the quarter company has faced margin pressure backed by high cost of RLNG,
                                                which constitute of almost 35% of the total raw material consumption. RLNG is expected to
                                                be a continuing feature in the company’s gas sourcing mix which will ease the supply
                                                concern of the company but company would face moderate margin pressure due to high
                                                cost of RLNG. However, recent hike in industrial and CNG segment provides cushion to the
                                                profitability and margins in coming quarters. At CMP of Rs.444 stock trades at 16.6x CY12E
                                                EPS and 3.9x P/BV, we maintain buy ratings on GGCL with target price of Rs.481.



Emkay Research           4 November 2011                                                                                                                             2
                                                         Gujarat Gas Company                                                                                                   Result Update



 Natural gas volume trend                                                                              Revenue trend / Scm
          350                                                                    14.0                               7000                                                              25.0

                                                                                 12.0
          300                                                                                                       6000
                                                                                 10.0                                                                                                 20.0
          250                                                                    8.0                                5000




                                                                                                                                                                                             Revenue/scm
                                                                                        (%) change
                                                                                 6.0
  mmscm




                                                                                                                                                                                      15.0




                                                                                                        Rs. in Mn
          200                                                                                                       4000
                                                                                 4.0
          150                                                                    2.0                                3000
                                                                                                                                                                                      10.0

          100                                                                    0.0                                2000
                                                                                 -2.0                                                                                                 5.0
          50                                                                                                        1000
                                                                                 -4.0
           0                                                                     -6.0                                 0                                                               0.0
                 2Q   3Q   4Q   1Q   2Q   3Q   4Q   Q1   Q2   Q3                                                            2Q   3Q   4Q   1Q   2Q   3Q   4Q   Q1   Q2   Q3
                CY09 CY09 CY09 CY10 CY10 CY10 CY10 CY11 CY11 CY11                                                          CY09 CY09 CY09 CY10 CY10 CY10 CY10 CY11 CY11 CY11

                            Volume (mmscm)   % Change (QoQ)                                                                                  Revenue      Revenue/scm




                                                          EBIDTA /scm

                                                                          1600                                                                                                        5.0

                                                                          1400                                                                                                        4.5
                                                                                                                                                                                      4.0
                                                                          1200
                                                                                                                                                                                      3.5




                                                                                                                                                                                                   EBIDTA/scm
                                                                          1000
                                                              Rs. in Mn




                                                                                                                                                                                      3.0
                                                                          800                                                                                                         2.5
                                                                          600                                                                                                         2.0
                                                                                                                                                                                      1.5
                                                                          400
                                                                                                                                                                                      1.0
                                                                          200                                                                                                         0.5
                                                                            0                                                                                                         0.0
                                                                                  2Q                  3Q             4Q      1Q      2Q      3Q         4Q     Q1        Q2     Q3
                                                                                 CY09                CY09           CY09    CY10    CY10    CY10       CY10   CY11      CY11   CY11

                                                                                                                           EBIDTA          EBIDTA/scm




Emkay Research             4 November 2011                                                                                                                                                                      3
                                                     Gujarat Gas Company                                                   Result Update

  Financials

  Income Statement                                                         Balance Sheet
  Y/E, Mar (Rs. mn)                     CY09        CY10   CY11E   CY12E   Y/E, Mar (Rs. mn)             CY09    CY10E    CY11E    CY12E
  Net Sales                            14197       18493   22484   26426   Equity share capital           401      401      401      401
  Growth (%)                                 9.1    30.3    21.6    17.5   Reserves & surplus            7397     9736    11785    14009
  Expenditure                          11402       14337   17797   20897   Net worth                     7797    10137    12186    14410
  Materials Consumed                   10031       12865   16072   18741   Minority Interest               52       60       71       85
  Employee Cost                          451         499     587     687   Secured Loans                    0        0        0        0
  Other Exp                              919         973    1138    1468   Unsecured Loans                  0        0        0        0
  EBITDA                                2795        4156    4688    5529   Loan Funds                       0        0        0        0
  Growth (%)                             18.8       48.7    12.8    18.0   Net deferred tax liability    2114     2114     2114     2114
  EBITDA margin (%)                      19.7       22.5    20.8    20.9   Total Liabilities             9963    12311    14371    16608
  Depreciation                           474         542     599     764   Gross Block                   9140    10440    11740    13040
  EBIT                                  2322        3614    4089    4765   Less: Depreciation            3041     3584     4181     4872
  EBIT margin (%)                        18.2       20.8    19.5    19.3   Net block                     5809     6601     7303     7912
  Other Income                           266         224     303     337   Capital work in progress      1356     1656     1956     2456
  Interest expenses                          1.4     4.6     1.4     1.4   Investment                    4238     4238     5238     6738
  PBT                                   2587        3833    4390    5100   Current Assets                1793     2779     3708     3993
  Tax                                    836        1243    1409    1688   Inventories                    211      235      266      297
  Effective tax rate (%)                 32.3       32.4    32.1    33.1   Sundry debtors                1139     1541     1935     2205
  Adjusted PAT                          1750        2590    2982    3412   Cash & bank balance             79      512      907      827
  Growth (%)                                 8.4    48.0    15.1    14.4   Loans & advances               264      350      457      521
  Net Margin (%)                         12.3       14.0    13.3    12.9   Other current assets            99      141      142      142
  (Profit)/loss from JVs/Ass/MI              0.0     0.0     0.0     0.0   Current lia & Prov            3476     3162     4028     4683
  Adjusted PAT After JVs/Ass/MI         1750        2590    2982    3412   Current liabilities           2152     2704     3409     3968
  E/O items                                  0.0     0.0     0.0     0.0   Provisions                    1324      459      619      715
  Reported PAT                          1750        2590    2982    3412   Net current assets            -1683    -383     -320      -690
  PAT after MI                          1742        2577    2970    3398   Misc. exp (incl. other Ex.)    244      255      255      255
  Growth (%)                                 8.4    48.0    15.2    14.4   Total Assets                  9963    12311    14371    16608


  Cash Flow                                                                Key Ratios
  Y/E, Mar (Rs. mn)                     CY09       CY10E   CY11E   CY12E   Y/E, Mar                      CY09    CY10E    CY11E    CY12E
  PBT                                   2587        3833    4675    4937   Profitability (%)
  Depreciation                           474         542     598     691   EBITDA Margin                  19.7    22.5     20.0      19.0
  Interest Provided                           1        5       1       1   Net Margin                     12.3    13.9     13.5      12.5
  Other Non-Cash items                        0        0       0       0   ROCE                           27.2    34.5     35.1      31.9
  Chg in working cap                     -364       -867     332     289   ROE                            23.3    28.9     26.9      26.0
  Tax paid                               -778      -1243   -1401   -1485   RoIC                           56.4    70.9     75.9      70.5
  Operating Cashflow                    1782        2276    4210    4434   Per Share Data (Rs)
  Capital expenditure                   -1553      -1600   -1600   -1800   EPS                            13.5    20.0     25.3      26.7
  Free Cash Flow                         229         676    2610    2634   CEPS                           17.3    24.4     30.2      32.3
  Other income                                0        0       0       0   BVPS                           60.8    79.0     95.0     112.4
  Investments                          -14225          0   -1000   -1500   DPS                             8.0     1.5      8.0       8.0
  Investing Cashflow                    -1966      -1600   -2600   -3300   Valuations (x)
  Equity Capital Raised                       0        0       0       0   PER                            32.9    22.2     17.5      16.6
  Loans Taken / (Repaid)                      0        0       0       0   P/CEPS                         25.5    18.1     14.7      13.7
  Interest Paid                               -1      -5      -1      -1   P/BV                            7.3     5.6      4.7       3.9
  Dividend paid (incl tax)               -240       -238   -1213   -1213   EV / Sales                      3.7     2.8      2.1       1.8
  Income from investments                     0        0       0       0   EV / EBITDA                    18.8    12.5     10.5       9.4
  Others                                 280           0       0       0   Dividend Yield (%)              1.8     0.3      1.8       1.8
  Financing Cashflow                         39     -243   -1215   -1215   Gearing Ratio (x)
  Net chg in cash                        -145        433     395     -80   Net Debt/ Equity               -0.6     -0.5     -0.5     -0.5
  Opening cash position                  224          79     512     907   Net Debt/EBIDTA                -1.5     -1.1     -1.3     -1.4
  Closing cash position                      79      512     907     827   Working Cap Cycle (days)      -20.6    -18.3    -18.2    -19.4



Emkay Research             4 November 2011                                                                                                  4
                                                                         Gujarat Gas Company                                                                                                 Result Update



                                                                       Recommendation History: Gujarat Gas Co. Ltd – GGAS IN

                                                                         Date                 Reports                                                                  Reco                   CMP          Target

                                                                         11/08/2011           Gujarat Gas Q2CY11 Result Update                                         Buy                     405             481

                                                                         29/04/2011           Gujarat Gas Q1CY11 Result Update                                         Buy                     375             481

                                                                         25/03/2011           Gujarat Gas Analyst Meet Update                                          Buy                     378             481

                                                                         01/03/2011           Gujarat Gas Q4CY11 Result Update                                         Buy                     339             481


                                                                       Recent Research Reports

                                                                         Date                Reports                                                                    Reco                   CMP         Target

                                                                         02/11/2011          HPCL Q2FY12 Result Update                                                  Buy                      337           463

                                                                         01/11/2011          BPCL Q2FY12 Result Update                                                  Accumulate               623           684

                                                                         25/10/2011          Reliance Industries Initiating Coverage                                    Buy                      846        1,119

                                                                         25/10/2011          GAIL Q2FY12 Result Update                                                  Accumulate               423           510




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Emkay Research                 4 November 2011                                                                                                                                  www.emkayglobal.com

				
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