Rupee depreciation, steep rise in global LNG prices and economic slowdown, impacted Gujarat Gas’ gas sales volumes in C12 and 1QC13. However, now the LNG prices have softened and the company expects sales volume to pick up, says SBI Cap
Due to increased LNG cost, the blended gas cost increased 34.8% year-on-year and 9.1% quarter-on-quarter to Rs24.4/scm, leading gross margin to dip to Rs4.5/scm compared to Rs5.7/scm in 4QC12 for Gujarat Gas Company Ltd. The company’s 1QC13 results on operational front were in-line with brokers’ estimates on lower volume and higher LNG cost. Net sales of the company increased 18.9% year-on-year and 0.8% quarter-on-quarter to Rs7.6 billion led by improved realisation.
On 1 February 2013, Gujarat Gas took 4.2% price hike in industrial segment and 8.5% in CNG. With higher other income, decline in the company’s net profit was limited to Rs595 million (declined 15.6% quarter-on-quarter). These are the observations made by SBI Cap Securities on Gujarat Gas in its performance analysis.
Gas sales volume declined 16.2% year-on-year and 2.2% quarter-on-quarter to 264mmscm due to lower volumes in industrial segment as gas cost was high, sums up SBI Cap Securities.
Margins are also expected to improve from hereon in view of price hikes, forecasts SBI Cap Securities. Bottom line of the company is expected to remain subdued for the next two years on lower sales volume. However, in the long term the company plans to improve volumes in order to increase bottom line.
Gujarat Gas received authorization from the Petroleum and Natural Gas Regulatory Board (PNGRB) for the city gas distribution areas of Surat, Bharuch and Ankleshwar. The company has filed tariff application with PNGRB for its transmission pipeline. However, due to high ROE (return on equity) of over 30%, the company is vulnerable to tariff reduction from PNGRB, as was ordered for Indraprastha Gas. This is an operational performance risk, pointed out by SBI Cap Securities.
The SBI Cap Securities report concludes on a positive note: “We expect better financial performance of the company going forward with gas sales volume to pick up gradually.” For shareholders and new investors there is a word of caution and a ‘hold’ recommendation.
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