10 August 2017
1QFY18 Results Update | Sector: Oil & Gas
Gujarat Gas
Sell
BSE SENSEX
31,798
S&P CNX
9,908
CMP: INR749
TP: INR691 (-8%)
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EBITDA above estimate led by lower gas cost; volume growth strong
GUJGA reported EBITDA of INR2.7b (+24% YoY, +84% QoQ), ahead of our
estimate of INR1.8b, led by lower RM cost of INR10.6b (-5% QoQ). Reported
PAT came in at INR1b (+39% YoY, +215% QoQ), significantly ahead of our
estimate of INR579m.
EBITDA/scm stood at INR4.8:
EBITDA/scm rose sharply to INR4.8 (+3% YoY,
+81% QoQ), ahead of our estimate of INR3.3, led by lower gas cost. We have
modeled EBITDA/scm at INR5/5.1 for FY18/19.
PNG volumes strong:
PNG industrial/commercial volumes stood at
4.4mmscmd (+25% YoY, +3% QoQ), and PNG household volumes at
0.4mmscmd (+14% YoY, -21% QoQ). We have modeled total PNG volumes at
5/5.6mmscmd for FY18/19
CNG volumes up 11% YoY:
CNG volumes stood at 1.3mmscmd (+11% YoY,
+2% QoQ). We model CNG volumes at 1.4/1.6mmscmd for FY18/19.
Valuation and view
We expect volume growth to continue in FY18/19, primarily led by PNG
industrial and commercial segment. For FY18/19, we model volumes of
6.4/7.2mmscmd and EBITDA/scm of INR5/5.1.
We understand that due to gas not being in GST, sales volume has been
impacted adversely. However, we also understand that state government is
mulling decreasing VAT which may result in the volumes being restored.
Global gas utility companies are trading at 17.0x CY18/FY19E EPS. Due to
higher volatility, we value the company at 15x, ~10% discount to global
peers. At 15x FY19E EPS of INR46.1, we value GUJGA at INR691, implying a
downside of 8%. Maintain
Sell.
FY17
FY18
2Q
3Q
4Q
1Q
2QE
3QE
4QE
12,371 12,309 14,002 14,780 16,911 17,281 18,016
-21.3 -17.1
1.6
20.7
36.7
40.4
28.7
10,243 10,600 12,539 12,082 13,991 14,265 14,972
2,129 1,709 1,463 2,698 2,920 3,015 3,045
17.2
13.9
10.4
18.3
17.3
17.5
16.9
645
653
643
666
725
725
725
541
539
476
496
378
378
378
53
75
71
78
137
137
137
995
593
415 1,615 1,954 2,050 2,079
277
170
84
571
645
676
686
27.8
28.6
20.2
35.4
33.0
33.0
33.0
718
423
331 1,044 1,309 1,373 1,393
158.8
31.5 -63.9
39.4
82.3 224.7 320.3
5.8
3.4
2.4
7.1
7.7
7.9
7.7
5.2
5.3
6.1
6.1
6.3
6.5
6.7
1.2
1.2
1.2
1.3
1.3
1.4
1.5
3.6
3.7
4.3
4.4
4.5
4.6
4.8
0.4
0.5
0.6
0.4
0.4
0.5
0.5
4.5
3.5
2.7
4.8
5.0
5.0
5.1
FY17
FY18E
(INR Million)
FY18
1QE Var (%)
15,438
-4.3
26.0
13,581
-11.0
1,857
45.3
12.0
710
-6.2
407
21.7
125
-37.1
864
86.9
285 100.4
33.0
579
80.2
-23.7
3.8
6.2
-2.0
1.3
-2.6
4.4
0.7
0.6
-22.3
3.3
48.3
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
GUJGA IN
137.7
103.3 / 1.6
880 / 487
-1/10/8
67
39.1
2019E
78.3
13.2
6.3
46.1
23.9
187.2
27.4
26.1
16.3
4.0
9.0
Financials & Valuations (INR b)
Y/E Mar
2017 2018E
Net Sales
50.9
67.0
EBITDA
7.5
11.7
PAT
2.8
5.1
EPS (INR)
20.4
37.2
EPS Gr. (%)
35.7
82.6
BV/Sh (INR)
119.5
149.7
RoE (%)
17.8
27.6
RoCE (%)
14.5
23.3
P/E (x)
36.8
20.1
P/BV (x)
6.3
5.0
EV/EBITDA (x)
16.8
10.6
Estimate change
TP change
Rating change
Standalone - Quarterly Earning Model
Y/E March
Net Sales
YoY Change (%)
Total Expenditure
EBITDA
Margins (%)
Depreciation
Interest
Other Income
PBT
Tax
Rate (%)
Reported PAT
YoY Change (%)
Margins (%)
Total volume (mmscmd)
CNG
PNG - Industrials/commercial
PNG - Households
EBITDA (INR/scm)
E: MOSL Estimates
1Q
12,247
-26.7
10,073
2,173
17.7
632
534
62
1,070
321
30.0
748
27.7
6.1
5.1
1.1
3.5
0.4
4.7
50,929 66,988
-16.6
31.5
43,455 55,310
7,474 11,678
14.7
17.4
2,672 2,840
1,518 1,629
372
489
3,655 7,698
852 2,579
23.3
33.5
2,803 5,119
35.7
82.6
5.5
7.6
5.4
6.4
1.2
1.4
3.8
4.6
0.5
0.5
3.8
5.0
Swarnendu Bhushan
(Swarnendu.Bhushan@MotilalOswal.com); +91 22 6129 1529
Abhinil Dahiwale
(Abhinil.Dahiwale@motilaloswal.com); +91 22 3980 4309
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.

Gujarat Gas
Exhibit 1: GUJGA: Operational Highlights
INR Million
Net sales
Realization (INR/scm)
Total raw material
Gas cost (INR/scm)
Gross Margin
Gross Margin (INR/scm)
EBITDA
EBITDA (INR/scm)
PAT
PAT (INR/scm)
Volumes
CNG (MMSCMD)
PNG - Household (MMSCMD)
PNG - Industrial (MMSCMD)
Total (MMSCMD)
1Q
16,709
30.6
13,573
24.9
3,136
5.7
2,014
3.7
586
1.1
1.1
0.5
4.4
6.0
FY16
2Q
3Q
15,722
14,846
30.5
30.8
13,199
12,097
25.6
25.1
2,523
2,749
4.9
5.7
1,469
1,579
2.9
3.3
278
322
0.5
0.7
1.1
0.4
4.1
5.6
1.0
0.4
3.9
5.2
4Q
13,782
28.5
10,228
21.2
3,553
7.4
2,203
4.6
690
1.4
1.1
0.5
3.7
5.4
1Q
12,247
26.6
8,872
19.3
3,375
7.3
2,173
4.7
748
1.6
1.1
0.4
3.5
5.1
FY17
2Q
3Q
12,371 12,309
26.1
25.2
9,010
9,362
19.0
19.1
3,361
2,947
7.1
6.0
2,129
1,709
4.5
3.5
718
423
1.5
0.9
1.2
0.4
3.6
5.2
1.2
0.5
3.7
5.3
4Q
14,002
25.6
11,137
20.4
2,865
5.2
1,463
2.7
331
0.6
1.2
0.6
4.3
6.1
FY18
1QFY18
1Q YoY (%) QoQ (%)
14,780
21%
6%
26.5
0%
3%
10,614
20%
-5%
19.1
-1%
-7%
4,166
23%
45%
7.5
2%
43%
2,698
24%
84%
4.8
3%
81%
1,044
39%
215%
1.9
15%
209%
1.3
0.4
4.4
6.1
11%
14%
25%
21%
2%
-21%
3%
1%
Source: Company, MOSL
Exhibit 2: PNG volumes were up ~44% YoY at 4.9mmscmd
PNG - Industrial (MMSCMD)
PNG (MMSCMD)
4.9
0.5
4.5
0.4
4.3
0.4
4.2
0.5
3.9
0.4
-20%
4.4
1QFY16
4.1
2QFY16
3.9
3QFY16
3.7
4QFY16
3.5
1QFY17
4.0
0.4
-12%
3.6
2QFY17
-2%
3.7
3QFY17
PNG - Household (MMSCMD)
YoY CNG growth (%)
4.2
0.5
4.8
0.6
14%
4.9
0.4
24%
4.3
4QFY17
4.4
1QFY18
Source: Company, MOSL
Exhibit 3: CNG volumes grew 11% YoY to 1.3mmscmd in 1QFY18
CNG (MMSCMD)
1.1
1.1
1.0
1.1
1.1
YoY CNG growth (%)
1.2
1.2
18%
1.2
1.3
4%
10%
8%
11%
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
Source: Company, MOSL
10 August 2017
2

Gujarat Gas
Exhibit 4: EBITDA/scm rose +3% YoY (+821% QoQ) to INR4.8/scm due to lower gas cost
EBITDA (INR/scm)
4.6
3.7
2.9
3.3
28%
7%
-41%
4QFY17
1QFY18
4.7
4.5
57%
3.5
2.7
3%
YoY (%)
4.8
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
Source: Company, MOSL
Valuation and view
The industrial segment constitutes 68% of GUJGA’s total sales volumes. Gas
competes with fuel oil, coal/petcoke, and other dirty fuels like rice husk and
briquette. In the absence of regulatory push, consumers are driven only by
economics and switch pretty quickly from one fuel to another.
Highly volatile commodity prices lead to instability in industrial sales volumes
and margins. From a peak of 8-9mmscmd, total sales volumes declined to
5.1mmscmd in 1QFY17 before rising to 6.1mmscmd in 4QFY17/1QFY18. Since
1QFY16, EBITDA/scm has seen a low of INR2.7 and a high of INR4.8.
We expect volume growth to continue in FY18/19, primarily led by PNG
industrial and commercial segment. We model 6.4/7.2mmscmd volumes for
FY18/19, and EBITDA/scm at INR5/5.1 for FY18/19.
We understand that due to gas not being in GST, sales volume has been
impacted adversely. However, we also understand that state government is
mulling decreasing VAT which may result in the volumes being restored.
Global gas utility companies are trading at 17.0x CY18/FY19E EPS. Due to higher
volatility, we value the company at 15x, ~10% discount to global peers. At 15x
FY19E EPS of INR46.1, we value GUJGA at INR691, implying a downside of 8%.
Maintain
Sell.
Exhibit 5: We value at 15x FY19E EPS to arrive at a value of INR691/share
Valuation table
FY19 volume (mmscmd)
FY19 EBITDA/scm (INR)
FY19 EPS (INR)
Valuation PE (x)
Target price (INR/share)
7.5
5.0
46.1
15.0
691
Source: Company, MOSL
10 August 2017
3

Gujarat Gas
Story in charts
Exhibit 6: Volume growth has been volatile
CNG (mmscmd)
PNG-ind/comm (mmscmd)
PNG-household (mmscmd)
Exhibit 7: EBITDA/scm likely to grow; volatility would be key
EBITDA/scm (INR)
5.0
5.6
3.6
3.8
5.1
4.9
4.0
0.5
1.1
FY16
3.8
0.5
1.2
FY17
4.6
0.5
1.4
FY18E
5.1
0.5
1.6
FY19E
0.5
1.9
FY20E
FY16
FY17
FY18E
FY19E
FY20E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 8: Return ratios to improve
ROE (%)
30.0
25.0
20.0
15.0
10.0
11.8
12.5
FY16
14.5
FY17
FY18E
FY19E
FY20E
17.8
23.3
27.6
ROCE (%)
27.4
26.1
26.6
24.7
Exhibit 9: Free cash flow to improve
FCFF (INR mn)
6,060
4,170
6,109
6,476
FY16
(4,070)
FY17
FY18E
FY19E
FY20E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 10: GUJGA 1Y forward P/E
61
51
41
31
21
11
1
7.7
18.4
26.8
PE (x)
Peak(x)
Avg(x)
51.9
Min(x)
Source: Company, MOSL
10 August 2017
4

Gujarat Gas
Financials and Valuations
Standalone - Income Statement
Y/E March
Income from Operations
Total Income from Operations
Change (%)
Total Expenditure
% of Sales
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income
PBT bef. EO Exp.
EO Items
PBT after EO Exp.
Current Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Margin (%)
FY14
77,974
77,974
72,233
92.6
5,741
7.4
2,826
2,915
3,003
1,101
1,012
-90
922
638
69.2
284
312
0.4
FY15
90,063
90,063
15.5
79,001
87.7
11,062
12.3
2,377
8,685
3,332
1,071
6,424
-10
6,414
1,979
30.8
4,436
4,443
1,323.3
4.9
FY16
61,059
61,059
-32.2
53,794
88.1
7,264
11.9
2,457
4,808
2,475
445
2,779
-256
2,523
648
25.7
1,875
2,065
-53.5
3.4
FY17
50,929
50,929
-16.6
43,455
85.3
7,474
14.7
2,672
4,802
1,518
372
3,655
0
3,655
852
23.3
2,803
2,803
35.7
5.5
FY18E
66,988
66,988
31.5
55,310
82.6
11,678
17.4
2,840
8,838
1,629
489
7,698
0
7,698
2,579
33.5
5,119
5,119
82.6
7.6
(INR Million)
FY19E
78,348
78,348
17.0
65,102
83.1
13,246
16.9
2,949
10,297
1,402
572
9,467
0
9,467
3,124
33.0
6,343
6,343
23.9
8.1
FY20E
86,938
86,938
11.0
72,751
83.7
14,187
16.3
3,083
11,104
1,174
634
10,564
0
10,564
3,486
33.0
7,078
7,078
11.6
8.1
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: MOSL Estimates
FY14
1,377
14,981
16,358
2,892
33,311
52,561
47,550
2,815
44,735
2,701
8,410
10,694
375
5,451
2,116
2,752
13,978
5,260
8,613
105
-3,284
52,561
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
10,018
22,987
49,453
59,263
10,376
48,887
5,057
696
8,248
417
3,475
608
3,748
13,435
3,140
9,896
399
-5,187
49,453
FY18E
1,377
19,235
20,612
10,018
19,987
50,616
61,275
13,216
48,059
8,046
696
4,949
288
2,682
-327
2,306
11,142
3,334
7,369
439
-6,193
50,608
(INR Million)
FY19E
1,377
24,393
25,770
10,018
16,987
52,774
63,884
16,164
47,720
10,437
696
6,940
339
3,137
767
2,697
13,026
3,924
8,618
483
-6,086
52,766
FY20E
1,377
30,149
31,526
10,018
13,987
55,530
66,971
19,247
47,724
12,349
696
9,233
378
3,481
2,380
2,993
14,480
4,385
9,563
532
-5,247
55,522
10 August 2017
5

Gujarat Gas
Financials and Valuations
Ratios
Y/E March
Basic (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
FY14
2.3
22.8
118.8
0.0
0.0
330.3
32.8
6.3
1.7
23.4
0.0
5.4
3.8
16.2
1.5
2
26
25
-25
0.8
1.0
2.0
FY15
32.3
49.5
144.6
5.0
18.7
23.2
15.1
5.2
1.5
12.0
0.7
60.2
24.5
19.2
1.6
2
15
17
-26
0.7
2.6
1.6
FY16
15.0
32.8
109.6
2.1
18.7
49.9
22.8
6.8
2.0
16.4
0.3
44.0
11.8
12.5
1.5
2
18
15
-66
0.4
1.9
1.1
FY17
20.4
39.8
119.5
3.2
18.7
36.8
18.8
6.3
2.5
16.8
0.4
-29.6
17.8
14.5
1.0
3
25
23
-42
0.6
3.2
1.4
FY18E
37.2
57.8
149.7
5.8
18.7
20.1
13.0
5.0
1.8
10.6
0.8
30.3
27.6
23.3
1.3
2
15
18
-32
0.4
5.4
1.0
FY19E
46.1
67.5
187.2
7.1
18.7
16.3
11.1
4.0
1.5
9.0
1.0
44.4
27.4
26.1
1.5
2
15
18
-32
0.5
7.3
0.7
FY20E
51.4
73.8
229.0
8.0
18.7
14.6
10.1
3.3
1.3
8.1
1.1
47.0
24.7
26.6
1.6
2
15
18
-32
0.6
9.5
0.4
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
Others
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
FY14
922
2,826
3,003
-1,599
-309
4,844
-726
4,119
-3,371
748
-12,397
2,374
-13,394
5,000
7,923
-1,351
-601
0
10,971
1,696
420
2,116
FY15
6,414
2,377
3,332
-1,461
1,852
12,514
-716
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
0
11,207
-5,147
6,060
9,773
189
4,815
0
-14,894
-2,475
-352
0
-17,721
-1,699
2,378
678
FY17
3,655
2,672
1,147
-852
-5,207
1,416
0
1,416
-5,486
-4,070
522
372
-4,593
0
5,140
-1,518
-524
0
3,098
-79
678
600
FY18E
7,698
2,840
1,141
-2,579
70
9,170
0
9,170
-5,000
4,170
0
489
-4,511
0
-3,000
-1,629
-956
0
-5,585
-927
600
-327
FY19E
9,467
2,949
830
-3,124
987
11,109
0
11,109
-5,000
6,109
0
572
-4,428
0
-3,000
-1,402
-1,185
0
-5,586
1,094
-327
767
(INR Million)
FY20E
10,564
3,083
540
-3,486
775
11,476
0
11,476
-5,000
6,476
0
634
-4,366
0
-3,000
-1,174
-1,322
0
-5,496
1,614
767
2,380
10 August 2017
6

Gujarat Gas
Corporate profile
Company description
Gujarat Gas Limited engages in the processing,
transmission, and distribution of natural gas. The
Company supplies piped natural gas to residential,
commercial, and industrial customers, and
compressed natural gas (CNG) through dispensers
to natural gas vehicles for refueling. Gujarat Gas
serves customers in India.
Source: MOSL/Bloomberg
Exhibit 1: Sensex rebased
Exhibit 2: Shareholding pattern (%)
Jun-17
Promoter
DII
FII
Others
60.9
2.5
14.8
21.8
Mar-17
60.9
2.3
15.4
21.4
Jun-16
60.9
4.5
13.1
21.5
Source: Capitaline
Exhibit 3: Top holders
Holder Name
Gujarat State Fertilizers & Chemicals Limited
Gujarat Industrial Development Corporation
Aberdeen Global Indian Equity Limited
Gujarat Alkalies and Chemicals Limited
Gujarat State Fertilizers & Chemicals Limited
% Holding
6.8
3.9
3.1
3.1
6.8
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
J N Singh
Rahul Devi
Jal Ratanshaw Patel
Designation
Chairman
CFO
Director
Exhibit 5: Directors
Name
Jal Ratanshaw Patel
Manjula Devi Shroff
Krishnadas Chatterjee
Ajit Chandulal Kapadia
Pradip Navin Khandwalla
Name
T Natarajan
Sujit Gulati
Sanjeev Kumar
Jagatheesa
Pandian
Dharmakkan
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
Ernst & Young
Manoj Hurkat & Associates
Manubhai & Shah LLP
Dalwadi & Associates
Internal
Secretarial Audit
Statutory
Cost Auditor
Source: Capitaline
Type
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY18
FY19
FY20
MOSL
forecast
37.2
46.1
51.4
Consensus
forecast
35.1
42.5
52.3
Variation (%)
5.9
8.5
-1.7
Source: Bloomberg
10 August 2017
7

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Gujarat Gas
Disclosure of Interest Statement
Analyst ownership of the stock
Gujarat Gas
No
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Registration details of group entities.: MOSL: NSE (Cash): INB231041238; NSE (F&O): INF231041238; NSE (CD): INE231041238; BSE (Cash): INB011041257; BSE(F&O): INF011041257; BSE(CD); MSE(Cash): INB261041231;
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10 August 2017
8