Gujarat Gas Company - Temporary mismatch in cost escalation and price hike; Maintain 'BUY'; TP Rs478 - PINC Research

Q4CY11 Result Review - Gujarat Gas Company

Temporary mismatch in cost escalation and price hike

Gujarat Gas Company's (GGAS) Q4CY11 net sales was lower than our and street estimates at Rs6.4bn (+27.2%YoY, -0.3%QoQ) impacted by lower than expected realisation growth. Temporary mismatch in raw material cost escalation due to rupee depreciation and passing on to end consumers adversely impacted EBITDA/scm (Rs1.0 in Q4CY11 vs Rs3.6 in Q3CY11). Consequently, Adj. Net profit decreased by 70%YoY to Rs247mn.

- Margin bottomed out

- Volume growth remains a concern

- Regulation of marketing margin not a big concern

VALUATIONS AND RECOMMENDATION

We have revised our earning estimates downward by 4.9% and 1.0% for CY12 and CY13 due to lack of visibility on volume growth. At the CMP of Rs389, the stock trades at a P/E of 14.5x and 12.8x and EV/ EBITDA of 10.6x and 9.2x for CY12E and CY13E respectively. We maintain our 'BUY' recommendation with a revised target price of Rs478 (12-month forward DCF).

Source : Equity Bulls

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