25 February 2020
Company Update | Sector: Oil & Gas
Gujarat Gas
Buy
BSE SENSEX
40,281
S&P CNX
11,798
CMP: INR290
TP: INR340 (+17%)
Lower LNG prices bode well for profitability
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
GUJGA IN
688
199.6 / 2.8
313 / 116
2/55/129
168
39.1
GUJGA has a long-term contract with Shell which will expire gradually by
2024. Volumes under the contract have already reduced from 2.5mmscmd
to 2.2mmscmd and are expected to decline to 2mmscmd from 2020.
Due to the supply glut globally, LNG prices have declined from
USD6.0/mmBtu in 2019 to below USD3/mmBtu this year. Replacement by
low-cost LNG would improve profitability.
The company is also ramping up its capacity at Morbi to enable it to handle
~8mmscmd.
Financials & Valuations (INR b)
Y/E March
2020E 2021E
Sales
105.2
123.0
EBITDA
15.7
16.7
PAT
11.4
9.3
EPS (INR)
16.5
13.5
EPS Gr. (%)
164.7
-18.2
BV/Sh.(INR)
44.8
55.2
Ratios
Net D:E
0.6
0.4
RoE (%)
43.0
27.0
RoCE (%)
29.2
28.3
Payout (%)
22.9
22.9
Valuations
P/E (x)
17.3
21.2
P/BV (x)
6.4
5.2
EV/EBITDA (x)
13.0
11.8
Div. Yield (%)
1.1
0.9
FCF Yield (%)
7.1
5.3
Shareholding pattern (%)
As On
Jun-19 Mar-19
Promoter
60.9
60.9
DII
5.4
3.9
FII
11.9
12.8
Others
21.7
22.4
FII Includes depository receipts
Stock Performance (1-year)
Gujarat Gas
Sensex - Rebased
310
240
170
100
2022E
135.6
18.4
10.6
15.4
14.3
67.1
0.3
25.3
29.0
22.9
18.5
4.3
10.2
1.0
5.7
Jun-18
60.9
2.9
13.8
22.4
NGT order may provide further volumes boost
In Nov’19, the National Green Tribunal (NGT) had stipulated strict action
against pollution control boards that do not comply with its Jul’19 order. It
has already levied INR4b of fine on the Morbi cluster in 2019.
We believe that further volume boost like Morbi could come up across the
country. Gujarat is home to critically/severely polluted industrial clusters
such as Rajkot, Ankleshwar, Batala, Bhavnagar, Tarapur and Vapi. Any
development on this front could boost volumes significantly.
GUJGA stated that customers with volumes of 2-2.5mmscmd had already
shifted to dirtier fuels. However, strict environmental compliance may result
in a large number of these consumers returning to gas.
CNG – attractive prospects
GUJGA is expected to come up with ~100 CNG stations in three years. This
would increase the reach of CNG in the state and encourage conversion.
With the increasing number of CNG stations and the focus on reducing
vehicular pollution, penetration in CNG segment is expected to increase.
Gujarat is home to ~78,000 buses, 90,000 taxis and 8.5 lakh autos (link).
However, GUJGA sells only 1.5mmscmd of CNG compared to 4.9mmscmd by
IGL. With improving ecosystem, CNG holds bright future for GUJGA.
Valuation and view
The NGT order has panned out strongly at Morbi. Gujarat is facilitated by
better availability of gas/pipeline infrastructure and already has a high
market share of natural gas in its energy mix (~25%).
Given lower LNG prices, we have modeled EBITDA/scm for the company at
INR4.5/INR4.5, with volumes growth forecast of 10% for FY21/22.
GUJGA trades at 21.2x FY21E EPS of INR13.5 and 11.8x FY21E EV/EBITDA.
We value the company at 22x FY22E EPS to arrive at a target price of INR340
and reiterate Buy rating.
Jump in LNG prices and open access remain the biggest risks to our rating.
Swarnendu Bhushan- Research Analyst
(Swarnendu.Bhushan@MotilalOswal.com); +91 22 6129 1529
Sarfraz Bhimani - Research Analyst
(Sarfraz.Bhimani@MotilalOswal.com); +91 22 6129 1566
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Motilal Oswal Financial Services
Gujarat Gas
Story in charts
Exhibit 1: Spot LNG
Platts LNG JKM (US$/mmBtu)
30
25
20
15
10
5
0
Slope (% of Brent)
Average Slope (%)
Strict equivalence is 17.2%, but LNG requires additional transportation cost & regasification cost
Source: Meti, Company, MOFSL
Exhibit 2: PNG – I/C to boost volumes growth
CNG (mmscmd)
PNG-household (mmscmd)
PNG-ind/comm (mmscmd)
Exhibit 3: EBITDA/scm to normalize ~INR4.5 in FY21/22
EBITDA/scm (INR)
4.6
4.1
7.9
8.6
3.6
3.8
3.9
4.5
4.5
7.3
4.0
0.5
1.1
FY16
3.8
0.5
1.2
FY17
4.4
0.5
1.3
FY18
4.6
0.5
1.4
FY19E
0.6
1.5
FY20E
0.6
1.7
FY21E
0.7
2.0
FY22E
FY16
FY17
FY18
FY19E
FY20E
FY21E
FY22E
Source: Company, MOFSL
Source: Company, MOFSL
Exhibit 4: 1-year forward GUJGA P/E
P/E (x)
46
36
26
16
Avg (x)
Max (x)
Min (x)
+1SD
-1SD
39.9
34.3
24.2
14.6
7.7
6
Source: Company, MOFSL
25 February 2020
2
 Motilal Oswal Financial Services
Gujarat Gas
Financials and Valuations
Standalone - Income Statement
Y/E March
Total Income from Operations
Change (%)
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income
PBT bef. EO Exp.
EO Items
PBT after EO Exp.
Current Tax
Tax Rate (%)
Less: Minority Interest
Reported PAT
Adjusted PAT
Change (%)
Margin (%)
FY15
90,063
15.5
11,062
12.3
2,377
8,685
3,332
1,071
6,424
-10
6,414
1,979
30.8
0
4,436
4,443
1,323.3
4.9
FY16
61,059
-32.2
7,264
11.9
2,457
4,808
2,475
445
2,779
-256
2,523
648
25.7
0
1,875
2,065
-53.5
3.4
FY17
50,926
-16.6
7,433
14.6
2,573
4,860
2,090
263
3,033
0
3,033
838
27.6
0
2,195
2,195
6.3
4.3
FY18
61,743
21.2
8,951
14.5
2,718
6,232
1,961
359
4,630
0
4,630
1,718
37.1
-13
2,924
2,924
33.2
4.7
FY19
77,544
25.6
9,846
12.7
2,880
6,966
1,962
1,116
6,120
-179
5,941
1,772
29.8
0
4,170
4,295
46.9
5.5
FY20E
1,05,213
35.7
15,711
14.9
3,213
12,498
1,997
870
11,371
0
11,371
10
0.1
-9
11,371
11,371
164.7
10.8
(INR Million)
FY21E
1,23,015
16.9
16,700
13.6
3,463
13,238
1,967
1,156
12,427
0
12,427
3,128
25.2
0
9,299
9,299
-18.2
7.6
FY22E
1,35,617
10.2
18,430
13.6
3,598
14,831
1,875
1,250
14,206
0
14,206
3,576
25.2
0
10,630
10,630
14.3
7.8
Standalone - Balance Sheet
Y/E March
Equity Share Capital
Total Reserves
Net Worth
Deferred Tax Liabilities
Total Loans
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Total Investments
Curr. Assets, Loans&Adv.
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Other Current Liabilities
Provisions
Net Current Assets
Appl. of Funds
E: MOFSL Estimates
FY15
1,377
18,532
19,909
3,528
31,960
55,397
50,114
5,247
44,867
3,574
10,990
9,495
411
3,606
2,378
3,101
13,529
4,262
8,193
1,074
-4,034
55,397
FY16
1,377
13,718
15,095
9,865
17,066
42,025
54,153
7,704
46,449
4,682
1,218
7,544
413
3,005
678
3,447
17,868
2,515
14,986
367
-10,324
42,025
FY17
1,377
15,072
16,449
9,849
22,987
49,285
59,393
10,376
49,017
5,071
683
8,714
417
3,475
608
4,214
14,199
3,140
10,660
399
-5,485
49,285
FY18
1,377
17,287
18,664
10,506
22,143
51,312
64,021
13,094
50,927
4,797
161
10,734
568
3,917
1,401
4,848
15,306
2,969
11,928
410
-4,572
51,312
FY19
1,377
20,676
22,053
10,869
20,892
53,814
68,861
15,974
52,887
4,918
160
13,610
694
5,103
3,132
4,681
17,762
3,558
13,129
1,075
-4,152
53,814
FY20E
1,377
29,447
30,823
10,869
17,892
59,584
70,845
19,187
51,657
7,935
160
26,372
963
6,675
10,475
8,260
26,540
5,033
20,325
1,183
-168
59,584
(INR Million)
FY21E
1,377
36,619
37,996
10,869
14,892
63,757
73,432
22,650
50,782
10,348
160
33,510
1,143
7,804
14,905
9,658
31,043
5,978
23,764
1,301
2,467
63,757
FY22E
1,377
44,819
46,196
10,869
11,892
68,957
76,501
26,248
50,253
12,278
160
40,484
1,260
8,604
19,973
10,647
34,219
6,589
26,199
1,431
6,265
68,956
25 February 2020
3
 Motilal Oswal Financial Services
Gujarat Gas
Financials and Valuations
Ratios
Y/E March (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
FCF per share
Return Ratios (%)
RoE
RoCE
Working Capital Ratios
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Creditor (Days)
Working Cap. Turnover (Days)
Leverage Ratio (x)
Current Ratio
Interest Cover Ratio
Debt/Equity
FY15
6.5
9.9
28.9
1.0
18.7
44.3
28.9
9.9
2.5
20.5
0.3
12.0
24.5
19.2
1.6
2
15
17
-26
0.7
2.6
1.6
FY16
3.0
6.6
21.9
0.5
21.7
95.3
43.5
13.0
3.5
29.4
0.2
8.8
11.8
12.5
1.5
2
18
15
-66
0.4
1.9
1.1
FY17
3.2
6.9
23.9
0.6
22.3
89.7
41.3
12.0
4.3
29.5
0.2
-5.7
13.9
14.3
1.0
3
25
23
-44
0.6
2.3
1.4
FY18
4.2
8.2
27.1
0.8
22.8
67.3
34.9
10.5
3.5
24.3
0.3
4.0
16.7
16.4
1.2
3
23
18
-35
0.7
3.2
1.2
FY19
6.2
10.4
32.0
1.2
22.9
45.8
27.4
8.9
2.8
21.8
0.4
6.2
21.1
19.3
1.4
3
24
17
-34
0.8
3.6
0.9
FY20E
16.5
21.2
44.8
3.1
22.9
17.3
13.5
6.4
1.9
13.0
1.1
20.4
43.0
29.2
1.8
3
23
17
-37
1.0
6.3
0.6
FY21E
13.5
18.5
55.2
2.6
22.9
21.2
15.4
5.2
1.6
11.8
0.9
15.1
27.0
28.3
1.9
3
23
18
-37
1.1
6.7
0.4
FY22E
15.4
20.7
67.1
2.9
22.9
18.5
13.8
4.3
1.4
10.2
1.0
16.2
25.3
29.0
2.0
3
23
18
-37
1.2
7.9
0.3
Standalone - Cash Flow Statement
Y/E March
OP/(Loss) before Tax
Depreciation
Interest & Finance Charges
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
CF from Operating incl EO
(Inc)/Dec in FA
Free Cash Flow
(Pur)/Sale of Investments
Others
CF from Investments
Issue of Shares
Inc/(Dec) in Debt
Interest Paid
Dividend Paid
Others
CF from Fin. Activity
Inc/Dec of Cash
Opening Balance
Closing Balance
E: MOFSL Estimates
FY15
6,414
2,377
3,332
-1,461
1,852
12,514
11,798
-3,508
8,290
-2,563
167
-5,904
0
-756
-4,874
-2
0
-5,632
262
2,116
2,378
FY16
2,779
2,457
2,029
-648
4,590
11,207
11,207
-5,147
6,060
9,773
189
4,815
0
-14,894
-2,475
-408
56
-17,721
-1,699
2,378
678
FY17
3,033
2,573
1,826
-838
-4,909
1,686
1,686
-5,629
-3,942
535
263
-4,830
0
5,921
-2,090
-491
-267
3,074
-70
678
608
FY18
4,630
2,718
1,602
-1,718
-120
7,112
7,112
-4,355
2,758
522
359
-3,474
0
-844
-1,961
-668
629
-2,845
793
608
1,402
FY19
6,120
2,880
846
-1,772
1,310
9,385
9,206
-4,962
4,245
0
1,116
-3,846
0
-1,251
-1,962
-953
536
-3,631
1,730
1,402
3,132
FY20E
11,371
3,213
1,127
-10
3,359
19,061
19,061
-5,000
14,061
0
870
-4,130
0
-3,000
-1,997
-2,600
9
-7,588
7,343
3,132
10,475
(INR Million)
FY21E
12,427
3,463
810
-3,128
1,795
15,367
15,367
-5,000
10,367
0
1,156
-3,844
0
-3,000
-1,967
-2,126
0
-7,093
4,430
10,475
14,905
FY22E
14,206
3,598
625
-3,576
1,270
16,124
16,124
-5,000
11,124
0
1,250
-3,750
0
-3,000
-1,875
-2,431
0
-7,306
5,068
14,905
19,973
25 February 2020
4
 Motilal Oswal Financial Services
Gujarat Gas
Explanation of Investment Rating
Investment Rating
Expected return (over 12-month)
BUY
>=15%
SELL
< - 10%
NEUTRAL
< - 10 % to 15%
UNDER REVIEW
Rating may undergo a change
NOT RATED
We have forward looking estimates for the stock but we refrain from assigning recommendation
*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within
following 30 days take appropriate measures to make the recommendation consistent with the investment rating legend.
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inform MOCMSPL.
Specific Disclosures
1 MOFSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company.
2 MOFSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company
3 MOFSL, Research Analyst and/or his relatives have not received compensation/other benefits from the subject company in the past 12 months
4 MOFSL, Research Analyst and/or his relatives do not have material conflict of interest in the subject company at the time of publication of research report
5 Research Analyst has not served as director/officer/employee in the subject company
6 MOFSL has not acted as a manager or co-manager of public offering of securities of the subject company in past 12 months
7 MOFSL has not received compensation for investment banking/ merchant banking/brokerage services from the subject company in the past 12 months
8 MOFSL has not received compensation for other than investment banking/merchant banking/brokerage services from the subject company in the past 12 months
9 MOFSL has not received any compensation or other benefits from third party in connection with the research report
10 MOFSL has not engaged in market making activity for the subject company
25 February 2020
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 Motilal Oswal Financial Services
Gujarat Gas
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The associates of MOFSL may have:
- financial interest in the subject company
- actual/beneficial ownership of 1% or more securities in the subject company
- received compensation/other benefits from the subject company in the past 12 months
- other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the
specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even
though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report.
- acted as a manager or co-manager of public offering of securities of the subject company in past 12 months
- be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the
company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies)
- received compensation from the subject company in the past 12 months for investment banking / merchant banking / brokerage services or from other than said services.
The associates of MOFSL has not received any compensation or other benefits from third party in connection with the research report
Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not
consider demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOFSL also earns DP income from
clients which are not considered in above disclosures.
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the
research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.
Terms & Conditions:
This report has been prepared by MOFSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and
may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent
of MOFSL. The report is based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in
nature. The information is obtained from publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty,
representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The
report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOFSL will not treat recipients as
customers by virtue of their receiving this report.
Disclaimer:
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or
distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for
informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing
in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances.
The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this
document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this
document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views
expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative products as well as non-investment grade
securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of
the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and
should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make
modifications and alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their directors and the employees may from
time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to
perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a
separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of
information that is already available in publicly accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the Company may or
may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on,
directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or
entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law,
regulation or which would subject MOFSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in
all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.
Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost
revenue or lost profits that may arise from or in connection with the use of the information.
The person accessing this information specifically agrees to exempt MOFSL or any of its
affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOFSL or any of its affiliates or employees responsible for any such
misuse and further agrees to hold MOFSL or any of its affiliates or employees free and harmless from all losses, costs, damages,
expenses that may be suffered by the person
accessing this information due to any errors and delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263;
Website
www.motilaloswal.com.CIN
no.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road,
Malad(West), Mumbai- 400 064. Tel No: 022 7188 1000.
Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst:
INH000000412. AMFI: ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579;PMS:INP000006712. Motilal Oswal Asset Management Company
Ltd. (MOAMC): PMS (Registration No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth
Management Ltd. (MOWML): PMS (Registration No.: INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is
a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs,Insurance Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt.
Ltd. which is a group company of MOFSL. Private Equity is offered through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of MOFSL.
Research & Advisory services is backed by proper research. Please read the Risk Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no
assurance or guarantee of the returns. Investment in securities market is subject to market risk, read all the related documents carefully before investing. Details of Compliance
Officer: Name: Neeraj Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.
* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National
Company Law Tribunal, Mumbai Bench.
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