6 November 2017
2QFY18 Results Update | Sector: Oil & Gas
Gujarat Gas
Sell
BSE SENSEX
33,731
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
S&P CNX
10,452
GUJGA IN
Roller coaster continues; both volume and EBITDA/scm poor
137.7
GUJGA reported EBITDA of INR2.0b (-3% YoY, -25% QoQ), below our
131.6 / 2.0
estimate of INR2.3b, led by a lower-than-expected margin. PAT came in at
945 / 487
INR611m (-12% YoY, -41% QoQ), significantly below our estimate, led by
-1/9/51
higher-than-expected interest cost and lower-than-expected other income.
66
39.1
PNG volumes strong:
PNG industrial/commercial volumes stood at
CMP: INR956
TP: INR721 (-25%)
Financials & Valuations (INR b)
Y/E Mar
2017 2018E
Net Sales
50.9
62.5
EBITDA
7.4
10.1
PAT
2.2
4.1
EPS (INR)
16.1
29.7
EPS Gr. (%)
7.0
85.1
BV/Sh (INR)
119.5
143.6
RoE (%)
14.0
22.6
RoCE (%)
14.4
19.4
P/E (x)
59.5
32.2
P/BV (x)
8.0
6.7
EV/EBITDA (x)
20.7
15.2
2019E
76.4
12.7
6.1
44.1
48.4
179.5
27.3
25.4
21.7
5.3
11.7
Estimate change
TP change
Rating change
4.0mmscmd (+13% YoY, -9% QoQ), and PNG household volumes at
0.5mmscmd (+5% YoY, +4% QoQ). Sequential decline in volumes was led by
non-inclusion of gas under GST, state bringing in a cut in VAT with a delay,
and flooding-related shutdowns by consumers. According to management,
the volumes lost have been made up for at the exit of the quarter.
CNG volumes up 7% YoY:
CNG volumes stood at 1.3mmscmd (+7% YoY, -1%
QoQ). Unless CNG volumes become a larger contributor, the company would
continue witnessing volatility in volumes and margins, in our view.
EBITDA/scm stood at INR3.8:
EBITDA/scm rose declined to INR3.8 (-13%
YoY, -21% QoQ), below our estimate of INR4.4, led by higher gas cost. We
have modeled EBITDA/scm at INR4.5/5.0 for FY18/19E.
Valuation and view
We expect volume growth to continue in FY18/19, primarily led by the PNG
industrial and commercial segment. For FY18/19E, we model volumes of
6.2/7.0mmscmd and EBITDA/scm of INR4.5/5.0.
We understand that with gas not being included under the GST, sales
volumes have been impacted adversely. However, the state government
decreased VAT, resulting in some restoration in volumes.
Propane and LPG are emerging as new and significant alternatives in areas
like Morbi.
We value the company at 15x (unchanged). At 15x average FY19-20E EPS of
INR48.1, we value GUJGA at INR721, implying a downside of 25%. Maintain
Sell.
FY17
FY18E
(INR Million)
FY18
2QE Var (%)
14,836
-6.2
19.9
12,555
-5.3
2,281
-11.2
15.4
725
-5.8
336
48.4
127
-30.1
1,347
-30.7
445
-27.4
33.0
903
-32.3
25.7
6.1
5.6
1.9
1.3
-1.1
3.9
2.7
0.4
3.9
4.4
-12.8
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- Indust./comm.
PNG - Households
EBITDA (INR/scm)
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
FY17
FY18
2Q
3Q
4Q
1Q
2Q
3QE
4QE
12,370 12,309 14,002 14,780 13,914 16,360 17,463
-21.3
-17.1
1.6
20.7
12.5
32.9
24.7
10,276 10,600 12,539 12,082 11,888 13,909 14,566
2,094 1,709 1,463 2,698 2,027 2,451 2,897
16.9
13.9
10.4
18.3
14.6
15.0
16.6
645
653
643
666
683
746
746
541
539
476
496
499
255
255
52
75
71
78
89
145
145
959
593
415 1,615
934 1,595 2,041
265
170
84
571
323
526
674
27.6
28.6
20.2
35.4
34.6
33.0
33.0
695
423
331 1,044
611 1,069 1,367
150.3
31.5
-63.9
39.4
-12.1 152.7 312.6
5.6
3.4
2.4
7.1
4.4
6.5
7.8
5.2
5.3
6.1
6.1
5.7
6.3
6.5
1.2
1.2
1.2
1.3
1.3
1.3
1.4
3.6
3.7
4.3
4.4
4.0
4.5
4.6
0.4
0.5
0.6
0.4
0.5
0.5
0.5
4.4
3.5
2.7
4.8
3.8
4.2
5.0
50,927 62,517
-16.6
22.8
43,488 52,444
7,440 10,072
14.6
16.1
2,672 2,840
2,090 1,504
371
456
3,050 6,184
839 2,094
27.5
33.9
2,210 4,090
7.0
85.1
4.3
6.5
5.4
6.2
1.2
1.3
3.8
4.4
0.5
0.5
3.8
4.5
Swarnendu Bhushan- Research Analyst
(Swarnendu.Bhushan@MotilalOswal.com); +91 22 6129 1529
Abhinil Dahiwale- Research Analyst
(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
FY17
FY18
2QFY18
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q YoY(%) QoQ(%)
15,722 14,846 13,782 12,247 12,370 12,309 14,002 14,780 13,914
12%
-6%
30.5
30.8
28.5
26.6
26.1
25.2
25.6
26.5
26.4
1%
0%
13,199 12,097 10,228 8,872 9,010 9,362 11,137 10,614 10,419
16%
-2%
25.6
25.1
21.2
19.3
19.0
19.1
20.4
19.1
19.8
4%
4%
2,523 2,749 3,553 3,375 3,360 2,947 2,865 4,166 3,496
4%
-16%
4.9
5.7
7.4
7.3
7.1
6.0
5.2
7.5
6.6
-6%
-11%
1,469 1,579 2,203 2,173 2,094 1,709 1,463 2,698 2,027
-3%
-25%
2.9
3.3
4.6
4.7
4.4
3.5
2.7
4.8
3.8
-13%
-21%
278
322
690
748
695
423
331 1,044
611
-12%
-41%
0.5
0.7
1.4
1.6
1.5
0.9
0.6
1.9
1.2
-21%
-38%
1.1
0.4
4.1
5.6
1.0
0.4
3.9
5.2
1.1
0.5
3.7
5.4
1.1
0.4
3.5
5.1
1.2
0.4
3.6
5.2
1.2
0.5
3.7
5.3
1.2
0.6
4.3
6.1
1.3
0.4
4.4
6.1
1.3
0.5
4.0
5.7
7%
5%
13%
11%
-1%
4%
-9%
-6%
Source: Company, MOSL
Exhibit 2: PNG industrial volumes were +13% YoY, -9% QoQ
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
4.1
3.9
3.7
3.5
4.0
0.4
-12%
3.6
PNG - Household (MMSCMD)
YoY CNG growth (%)
4.2
0.5
-2%
3.7
4.8
0.6
14%
4.9
0.4
24%
4.5
12%
4.3
4.4
4.0
1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18
Source: Company, MOSL
Exhibit 3: CNG volumes grew 7% YoY to 1.3mmscmd
CNG (MMSCMD)
1.1
1.1
1.1
1.1
1.2
YoY CNG growth (%)
1.2
18%
1.2
1.3
1.3
1.0
4%
10%
8%
11%
7%
1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18
Source: Company, MOSL
6 November 2017
2

Gujarat Gas
Exhibit 4: EBITDA/scm declined to INR3.8 due to higher gas cost
EBITDA (INR/scm)
4.6
3.7
2.9
3.3
28%
7%
-41%
3%
-13%
4.7
4.4
55%
3.5
2.7
YoY (%)
4.8
3.8
1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18
Source: Company, MOSL
Valuation and view
The industrial segment constitutes ~70% 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 they 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 the PNG
industrial and commercial segment. We model 6.2/7.0mmscmd volumes for
FY18/19, and EBITDA/scm at INR4.5/5.0 for FY18/19.
We believe that H2FY18 could be even worse for the company, as spot LNG
prices have risen to >USD9/mmBtu since the last few days. Spot accounts for
~20% of industrial sourcing for Gujarat Gas.
We value the company at 15x, ~10% discount to global peers. At 15x average
FY19-20E EPS of INR48.1, we value GUJGA at INR721, implying a downside of
24%. Maintain
Sell.
Exhibit 5: We value at 15x average FY19-20E EPS to arrive at a value of INR721/share
Valuation table
Average FY19-20 EPS (INR)
Valuation PE (x)
Target price (INR/share)
48.1
15.0
721
Source: Company, MOSL
6 November 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)
4.5
5.0
5.0
4.0
0.5
1.1
FY16
3.8
0.5
1.2
FY17
4.4
0.5
1.3
FY18E
4.9
0.5
1.5
FY19E
5.4
3.6
3.8
0.6
1.8
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
FY16
FY17
FY18E
FY19E
FY20E
ROCE (%)
Exhibit 9: Free cash flow to improve
FCFF (INR mn)
6,060
2,732
5,907
6,507
FY16
(4,092)
FY17
FY18E
FY19E
FY20E
Source: Company, MOSL
Source: Company, MOSL
6 November 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
50,927
50,927
-16.6
43,488
85.4
7,440
14.6
2,672
4,768
2,090
371
3,050
0
3,050
839
27.5
2,210
2,210
7.0
4.3
FY18E
62,517
62,517
22.8
52,444
83.9
10,072
16.1
2,840
7,232
1,504
456
6,184
0
6,184
2,094
33.9
4,090
4,090
85.1
6.5
FY19E
76,353
76,353
22.1
63,607
83.3
12,746
16.7
2,949
9,798
1,294
557
9,061
0
9,061
2,990
33.0
6,071
6,071
48.4
8.0
(INR Million)
FY20E
85,518
85,518
12.0
71,276
83.3
14,242
16.7
3,083
11,159
1,084
624
10,698
0
10,698
3,530
33.0
7,168
7,168
18.1
8.4
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
18,398
19,775
10,018
19,987
49,780
61,275
13,216
48,059
8,046
696
3,438
273
2,503
-1,490
2,152
10,477
3,161
6,877
439
-7,039
49,762
FY19E
1,377
23,335
24,712
10,018
16,987
51,716
63,884
16,164
47,720
10,437
696
5,563
331
3,057
-454
2,629
12,716
3,834
8,399
483
-7,153
51,699
(INR Million)
FY20E
1,377
29,164
30,541
10,018
13,987
54,545
66,971
19,247
47,724
12,349
696
7,993
371
3,424
1,255
2,944
14,235
4,296
9,407
532
-6,241
54,528
6 November 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
421.7
41.9
8.0
2.1
28.4
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
29.6
19.3
6.6
1.8
14.6
0.5
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
63.7
29.1
8.7
2.4
20.4
0.2
44.0
11.8
12.5
1.5
2
18
15
-66
0.4
1.9
1.1
FY17
16.1
35.5
119.5
2.5
18.7
59.5
27.0
8.0
3.0
20.7
0.3
-29.7
14.0
14.4
1.0
3
25
23
-42
0.6
2.3
1.4
FY18E
29.7
50.3
143.6
4.6
18.7
32.2
19.0
6.7
2.4
15.2
0.5
19.8
22.6
19.4
1.3
2
15
18
-32
0.3
4.8
1.0
FY19E
44.1
65.5
179.5
6.8
18.7
21.7
14.6
5.3
2.0
11.7
0.7
42.9
27.3
25.4
1.5
2
15
18
-32
0.4
7.6
0.7
FY20E
52.1
74.5
221.8
8.1
18.7
18.4
12.8
4.3
1.7
10.1
0.8
47.3
25.9
27.3
1.6
2
15
18
-32
0.6
10.3
0.5
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
3,050
2,672
1,718
-839
-5,207
1,394
0
1,394
-5,486
-4,092
522
844
-4,120
0
5,140
-2,090
-413
0
2,638
-88
678
590
FY18E
6,184
2,840
1,048
-2,094
-246
7,732
0
7,732
-5,000
2,732
0
456
-4,544
0
-3,000
-1,504
-764
0
-5,268
-2,080
590
-1,490
(INR Million)
FY19E
9,061
2,949
737
-2,990
1,150
10,907
0
10,907
-5,000
5,907
0
557
-4,443
0
-3,000
-1,294
-1,134
0
-5,428
1,036
-1,490
-454
FY20E
10,698
3,083
460
-3,530
796
11,507
0
11,507
-5,000
6,507
0
624
-4,376
0
-3,000
-1,084
-1,339
0
-5,423
1,708
-454
1,255
6 November 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 (%)
Sep-17
Promoter
DII
FII
Others
60.9
2.4
14.9
21.8
Jun-17
60.9
2.5
14.8
21.8
Sep-16
60.9
4.1
13.6
21.4
Source: Capitaline
Exhibit 3: Top holders
Holder Name
Gujarat State Fertilizers & Chemicals Limited
Gujarat Industrial Development Corporation
Gujarat Alkalies & Chemicals Limited
Abedeen Global Indian Equity Limited
Gujarat State Fertilizers & Chemicals Limited
% Holding
6.8
3.9
3.1
2.7
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
29.7
44.1
52.1
Consensus
forecast
33.2
40.2
46.2
Variation (%)
-10.6
9.7
12.8
Source: Bloomberg
6 November 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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6 November 2017
8