Industrial volumes in 4QFY19 were down 6.8% q/q but came 1.6% ahead of JEFe while overall volumes declined 3% q/q coming 1.5% ahead of JEFe.
Gujarat Gas reported softer than expected results in 4QFY19 with EBITDA 8% lower than JEFe led by EBITDA margin miss (Rs 4.3/scm; JEFe: Rs 4.8/scm) while volumes were 1.5% ahead. PAT, however, was 24% above JEFe due to lower taxes. But outlook is strong with Morbi volumes now at 4.5 mmscmd (uptick of 2 mmscmd vis-a-vis 1 mmscmd we build in) posing upside risks to our FY20E volume estimates. With the stock trading at 19x FY20E P/E, we keep our ‘Buy’.
Industrial volumes in 4QFY19 were down 6.8% q/q but came 1.6% ahead of JEFe while overall volumes declined 3% q/q coming 1.5% ahead of JEFe. EBITDA margins moderated q/q to Rs 4.3/scm in 4QFY19 (JEFe: Rs 4.8/scm). We have built in Rs 4.5/scm EBITDA margin in FY20E. EBITDA came 8.1% below JEFe mainly driven by the 9.5% miss in EBITDA margin while Gross margin was 2.4% below JEFe. Staff costs and other opex came ahead of JEFe.
Guj Gas had taken multiple price cuts during 4QFY19 to pass through the benefit of lower LNG prices with prices for ceramic currently at Rs 29.1/scm (3QFY19: Rs 35.1/scm) and non-ceramic industrial PNG prices now at Rs 30.9/scm (3QFY19: Rs 36.9/scm). At current prices, we estimate FO to be at 13% premium to non-ceramic PNG.
We have kept our estimates unchanged now but see potential for strong upside to our estimates given the positive trends at Morbi. We have built in a volume upside of ~ 1 mmscmd from Morbi but volumes have grown by ~ 2 mmsmcd and could be even higher if constraints on the infra side are resolved. This demand is unprecedented given the peak in 2014 was 3.7 mmsmcd but infrastructure is currently being laid out which could solve the supply issue unlocking higher demand. Indeed volumes from Morbi itself could even potentially touch 6 mmsmcd with unorganised players opting to shift to PNG and we have not heard of any appeal to SC against the ban yet.
We keep our Buy on Gujarat Gas with a Rs 185 PT (22x FY 20E P/E). If Morbi volumes stays at current levels then there could be an upside of ~ 12% to our Guj Gas volume and EBITDA estimates for FY20E. The IMO regulation could be a headwind in FY21E.