Gu­jarat Gas Ltd

(BSE Code: 539336) (CMP: Rs.662.75) (FV: Rs.10)

Money Times - - Stock Watch -

Gu­jarat Gas Ltd (GGL), for­merly GSPC Dis­tri­bu­tion Net­works Ltd, is en­gaged in the nat­u­ral gas busi­ness in Gu­jarat. It is en­gaged in City Gas Dis­tri­bu­tion in­clud­ing sale, pur­chase, sup­ply, dis­tri­bu­tion, trans­port, trad­ing in nat­u­ral gas, com­pressed nat­u­ral gas (CNG), liq­ue­fied nat­u­ral gas (LNG), liq­ue­fied pe­tro­leum gas (LPG) and other gaseous form through pipe­lines, trucks/trains or other such suitable modes for trans­porta­tion/dis­tri­bu­tion of gas. It sup­plies Piped Nat­u­ral Gas (PNG) for do­mes­tic usage to over 10,80,000 house­holds in Gu­jarat. It op­er­ates the HAPi pipe­line, which is a 73.2 km long and 18-inch di­am­e­ter nat­u­ral gas pipe­line. It sup­plies PNG to over 11,900 com­mer­cial and non-com­mer­cial premises across Gu­jarat. It sup­plies PNG to ~2,835 in­dus­trial cus­tomers, cov­er­ing all the in­dus­trial zones across Gu­jarat. GGL, driven by a sus­tain­able dou­ble-digit vol­ume growth (10% CAGR) and grad­ual uptick in av­er­age re­al­iza­tions (8% CAGR), is ex­pected to grow at 19% CAGR to Rs.10730 crore by FY21. In­creas­ing in­dus­trial usage of NG, grad­ual roll out of CNG pumps and ris­ing ur­ban­iza­tion is ex­pected to con­trib­ute to the vol­ume growth. With im­prove­ment in blended re­al­iza­tions, we ex­pect EBIDTA to grow at a faster CAGR of 18% to Rs.1508 crore over the same pe­riod. PAT is ex­pected to out­pace the EBIDTA growth and scale to Rs.766 crore (38% CAGR) on the back of sub­dued capex and lower debt. We are ex­tremely op­ti­mistic about the long-term vol­ume growth

vis­i­bil­ity given that ~62% of DMIC (Delhi Mum­bai In­dus­trial Cor­ri­dor) passes through the state of Gu­jarat. Once op­er­a­tional, we ex­pect in­dus­trial usage of NG to pick up fa­vor­ably. Fur­ther, the Gu­jarat lo­cal trans­port is ex­pected to mi­grate to the usage of NG post a fa­vor­able ver­dict from the Gu­jarat High Court. The pub­lic in­ter­est lit­i­ga­tion (PIL) seek­ing the ban on diesel-run com­mer­cial and pub­lic trans­port ve­hi­cles in fa­vor of NG over tra­di­tional fuel is pend­ing with the High Court. Given the global con­cern over de­te­ri­o­rat­ing en­vi­ron­ment and the fact that In­dia is close to sur­pass­ing China as the most pol­lut­ing coun­try, we ex­pect faster mi­gra­tion to green fu­els, es­pe­cially NG. The GoI’s re­cent drive of hav­ing a pan In­dia net­work with a capex of Rs.70000 crore bears tes­ti­mony to the same. We ex­pect strong growth across all 4 seg­ments i.e. PNG In­dus­trial, PNG Do­mes­tic, PNG Com­mer­cial and CNG. In­dus­trial vol­umes are ex­pected to grow 11% from 4.6 mm­scmd as at Q2FY19 to 5.9 mm­scmd by FY21 on fa­vor­able tail winds and ris­ing prices of al­ter­na­tive fu­els like FO, coal and lig­nite. GGL en­joys a dom­i­nant po­si­tion in terms of reach of res­i­den­tial cus­tomers and vol­umes. Its cur­rent base of 12,50,000 sub­scribers is ex­pected to reach 15,38,000 by FY21, with vol­ume growth of 7% CAGR from 0.5 mm­scmd to 0.6 mm­scmd over the fore­cast pe­riod on the back of ris­ing ur­ban­iza­tion. GGL’s com­mer­cial seg­ment has a min­i­mal share of the rev­enue. Its vol­umes are ex­pected to grow at 4.7% CAGR from 0.1 mm­scmd cur­rently to 0.12 mm­scmd by FY21. Its CNG seg­ment, which con­trib­utes to ~20% of the to­tal rev­enue, is sup­ported by 291 ex­ist­ing CNG sta­tions. The growth of the CNG seg­ment is spo­radic as set­ting up of new sta­tions re­quires gov­ern­ment sanc­tion. Although GGL is will­ing to add 40-50 sta­tions a year, the em­pir­i­cal ev­i­dence sug­gests that 10-15 new gas sta­tions on an av­er­age have been com­mis­sioned in the past. We have as­sumed the num­ber of sta­tions to grow 14% to reach a to­tal of 333 CNG sta­tions by FY21. We ex­pect vol­umes to grow at 14.3% CAGR lead­ing to rev­enue growth of 23% CAGR to Rs.2263 crore aided by pe­ri­odic hikes in av­er­age pric­ing.

Tech­ni­cal Out­look: The stock looks good on the daily chart for medium-term in­vest­ment. It has bro­ken out from the down­ward chan­nel pat­tern formed on the daily chart. The stock trades be­low all im­por­tant mov­ing av­er­ages like the 200 DMA level on the daily chart.

Start ac­cu­mu­lat­ing at this level of Rs.662.75 and on dips to Rs.620 for medium-to-long term in­vest­ment and a pos­si­ble price tar­get of Rs.750+ in the next 12 months.

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