The long-term opportunity for GUJGA is sizable, given just 18% penetration in the PNG-domestic segment and 30% penetration in the CNG segment, coupled with possible regulatory push. Combined pre-merger peak sales were 8-9mmscmd. Morbi, the largest industrial cluster itself has a potential of ~6mmscmd against which GUJGA is doing ~2.5mmscmd currently. However, 68% volume exposure to the industrial segment makes both volume and EBITDA highly volatile for GUJGA, resulting in much lower valuation multiple than Indraprastha Gas (IGL) and Mahanagar Gas (MAHGL).
Gujarat has a total addressable vehicle population of 3m, including 71,000 buses. CNG penetration in the state is ~30%, with GUJGA catering to 0.65m CNG vehicles. Gujarat has the longest coastline of 1,600km in the country, the largest area under SEZs, and accounts for a quarter of the total goods exported from the country. It is a leader in chemicals, petrochemicals, dairy, pharmaceuticals, cement and ceramics, textiles, gems and jewelry, and engineering. The company has added new areas in recent bids – Amreli, Ahmedabad rural, Dahej, Dahod, Panchmahal and Anand.
It is still ramping up operations in Bhavnagar, Jamnagar and Dadra & Nagar Haveli, all of which have 0.2-0.5mmscmd peak potential. Highly volatile commodity prices result in highly volatile industrial sales volumes as well as margins. Since Q1FY16, EBITDA/scm has seen a low of Rs 2.9 and a high of Rs 4.8. Global gas utility companies are trading at 17.0x CY18/FY19 EPS. Due to higher volatility, we value the company at 15x, a ~10% discount to global peers. At 15x FY19E EPS of `49.0, we value GUJGA at Rs 735.