Date: 7th October 2019 Gas... · 2019-10-07 · India’s Natural Gas supply and demand outlook has seen structural changes over the recent past. The Government of India (GoI) wants

Date: 7th October 2019

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Equity Research Pick of the Week – Retail Research

Volume grew sharply in Q1 and could continue to grow EBITDA/scm has been on rising trend due to softer LNG prices

Aggressive capex plans and entering into new GAs

Gujarat Gas Ltd

INDUSTRY

CMP

RECOMMEND ed

ADD ON DIPS TO

SEQUENTIAL TARGETS

TIME HORIZON ed

City Gas Distribution

Rs 175

Buy at CMP and add on declines

Rs 157-160

Rs 192.50-211.50 Rs 151

3-4 quarters

Investors may sell 60-65% of their holdings on first target being achieved and later keep a stop loss of first target for the balance holdings, in case the second target takes time to be achieved.

Investors may also maintain Rs 151 as level below which investment position needs to be reviewed, including the possibility to exit

Favorable demand environment for CGD business

Expanding gas network to increase volumes

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HDFC Scrip Code GUJGASEQNR

BSE Code 539336

NSE Code GUJGAS LTD

Bloomberg GUJGA IN

CMP Oct 04, 2019 175.0

Equity Capital (cr) 137.7

Face Value (Rs) 2.0

Eq- Share O/S(cr) 68.8

Market Cap(Rs cr) 12046.8

Book Value (Rs) 32.0

Avg.52 Wk Volume 461233

52 Week High 195.0

52 Week Low 116.0

Shareholding Pattern % (June 30, 2019)

Promoters 60.9

Institutions 17.4

Non Institutions 21.7

Total 100.0

Investment rationale: • Following the ban on coal gasifiers in Morbi by NGT, volume growth rose sharply in Q1 and could continue to grow • EBITDA/scm has been on rising trend over the last two quarters due to softer LNG prices • Favorable demand environment for CGD business • Continues to expand network though aggressive capex plans and entering into new GA’s

Concerns: • Regulatory risks and delay in administrative approvals • Slow CNG demand growth in Gujarat • Sharp rise in LNG prices and emerging competition • Currency Volatility

Company profile: Gujarat Gas Limited (GGL, amalgamated entity, formerly known as GSPC Distribution Networks Ltd) is India’s largest city gas distribution company, with presence across 23 regions in the State of Gujarat, Union Territory of Dadra and Nagar Haveli and Thane Geographical Area (GA) (barring already authorized area including Maharashtra's Palghar locale). In PNGRB’s 10th CGD offering round, the company has won 6 GAs including 17 cities in the state of Punjab, Haryana, Madhya Pradesh and Rajasthan. The company has around 23,200 km of gas pipeline network. It distributes around 9-9.5 million metric standard cubic meters of gas every day to about 13,55,000 households, around 2 lakh CNG vehicles (serving every day) and to more than 3,540 industrial customers.

View and valuation: India’s Natural Gas supply and demand outlook has seen structural changes over the recent past. The Government of India (GoI) wants to make India a gas-based economy by boosting domestic production and relying on cheap imported LNG. India has set a target to raise the share of gas in its primary energy mix to 15% by 2022 from 7% in 2018. GGL has been continuously growing and expanding its horizon by venturing into new geographic areas and is committed to reach every possible Natural Gas user across its licensed expanse of around 1,69,500 square kilometres through its ever growing pipeline network spread across 41 districts and six states and one union territory. In Q1FY20 GGL has performed better, where in volumes rose sharply and margins recovered sharply. Investors would now watch for some stability in margin performance. GGL could report the best profit growth among peers in FY19-FY21. GGL is expected to report its highest volume growth during FY20, aided by higher demand from ceramic tile makers in Morbi, Gujarat. Higher contribution from CNG, lower reliance on industries for PNG and lower volatility in its margin/volume trajectory going forward could improve its valuations. We feel investors could buy the stock at the CMP and add on dips to Rs 157-160 band (12.75x FY21E EPS) for sequential targets of Rs 192.50 (15.5x FY21E EPS) and Rs 211.50 (17.0x FY21E EPS) in 3-4 quarters. At CMP of Rs 175 the stock quotes at 12.4x FY21E EPS.

FUNDAMENTAL ANALYST

Abdul Karim

[email protected]

mailto:[email protected]

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Financial Summary

YE March (Rs cr) Q1FY20 Q1FY19 YoY (%) Q4FY19 QoQ (%) FY18 FY19 FY20E FY21E

Net Sales 2614.6 1765.1 48.1% 1907.6 37.1% 6174.6 7754.4 9931.1 11577.4

EBITDA 466.5 248.6 87.7% 254.1 83.6% 895.4 984.6 1389.4 1573.4

APAT 233.7 121.4 92.5% 116.5 100.5% 292.7 418.5 701.6 856.3

Diluted EPS (Rs) 3.4 1.8 92.5% 1.7 100.5% 4.2 6.1 10.2 12.4

P/E (x) 41.3 28.9 17.2 14.1

EV / EBITDA (x) 15.8 14.0 9.7 8.4

RoE (%) 15.6% 18.9% 21.0% 21.2%

Key Highlights

GGL is India’s largest city gas distribution company, with presence across 23 regions in the State of Gujarat, Union Territory of Dadra and Nagar Haveli and Thane Geographical Area (GA) (barring already authorized area including Maharashtra's Palghar locale).

The company has around 23,200 km of gas pipeline network. It distributes around 9-9.5 million metric standard cubic meters of gas every day to about 13,55,000 households, around 2 lakh CNG vehicles (serving every day) and to more than 3,540 industrial customers.

Following the ban on coal gasifiers in

Morbi by NGT, volume growth rose sharply in Q1 and could continue to grow going forward.

In Q1FY20 GGL has performed better, where in volumes rose sharply and margins recovered sharply. Investors would now watch for some stability in margin performance.

(Source: Company, HDFC sec)

Company profile:

Gujarat Gas Limited (GGL, amalgamated entity, formerly known as GSPC Distribution Networks Ltd) is India’s largest city gas distribution company, with presence across 23 regions in the State of Gujarat, Union Territory of Dadra and Nagar Haveli and Thane Geographical Area (GA) (barring already authorized area including Maharashtra's Palghar locale). In PNGRB’s 10th CGD offering round, the company has won 6 GAs including 17 cities in the state of Punjab, Haryana, Madhya Pradesh and Rajasthan. The company has around 23,200 km of gas pipeline network. It distributes around 9-9.5 million metric standard cubic meters of gas every day to about 13,55,000 households, around 2 lakh CNG vehicles (serving every day) and to more than 3,540 industrial customers. GGL is GSPC (Gujarat State Petroleum Corporation Ltd - a Gujarat state Govt enterprise) Group Company, and GSPC Group companies collectively enjoy a presence in both the upstream and downstream segments of the energy value chain - starting from exploration and production, gas transmission, city gas distribution, power generation and even information technology. GSPL owns 54.17% stake and Governor of Gujarat holds 6.53% stake in the company. Operating Metrics

Particulars, Rs in Cr Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20

Sales Cr 1391.4 1571.3 1733.6 1765.1 1964.3 2117.4 1907.6 2614.6

Sales Volume (MMSCM) 522.6 579.6 618.8 582.4 607.2 598.0 576.0 837.2

Sales Volume (MMSCMD) 5.7 6.3 6.8 6.4 6.6 6.5 6.4 9.2

CNG 1.3 1.3 1.38 1.4 1.4 1.4 1.5 1.5

Domestic PNG 0.5 0.5 0.72 0.5 0.5 0.5 0.5 0.5

Industrial PNG 3.9 4.5 4.7 4.5 4.7 4.6 4.3 7.2

Total Volume 5.7 6.3 6.8 6.4 6.6 6.5 6.3 9.2


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Investment Rationale

Following the ban on coal gasifiers in Morbi by NGT, volume grew sharply in Q1 and could continue to grow • On March 10, 2019, National Green Tribunal had ordered all ceramic units in Morbi using coal gasifier (mainly unorganized sector) to either shut down or shift to

natural gas, with a two-month deadline to shut existing coal infrastructure and significant penalties after that. In its order dated July 10, 2019, the NGT had directed the Central Pollution Control Board (CPCB) to assess the compensation to be recovered from polluting units for the last five years, in accordance with state PCBs.

• Coal is ~ 30% cheaper than natural gas price, while, natural gas does not suffer from ash disposal related issues and it is more is more convenient to use. Natural gas gives a better quality product as compared to coal. Natural gas provides consistent heat, helps in consistency of product over time while coal has variable calorific value.

• Demand from Morbi rose from 2.5 mmscmd earlier to 5.0 mmscmd in Q1FY20. GGL’s overall volume rose ~43 percent (year-on-year) as a result of this and other growth factors.

• Tile manufacturers in Morbi constitute ~70% of the total industrial volume. The strong demand of this cluster is attributable to (1) Low spot LNG prices, (2) Robust export demand from the Middle East, Russia and Europe, (3) NGT’s order that compels shifting to natural gas. The 2x jump in Morbi volumes could sustain. If the presently sluggish domestic tile demand picks up, volume from the Morbi cluster will rise further.

• GGL is only supplier of gas in the area and its revenue could grow by 28.1% and 16.6% in FY20E and FY21E. Because of implentation of NGT order in Morbi, overall volumes grew to 9.2MMSCMD in Q1FY20 vs. 6.4MMSCMD in Q4FY19.

Expanding gas network to increase volume is key growth driver • GGL continues to be India’s largest city gas distributor (CGD) with presence in 23 districts across Gujarat, Dadra Nagar Haveli and Maharashtra. The company benefits

from the economies of scale, diversified customer and sourcing bases, and extensive infrastructure through large upfront capex. • Company was awarded 11 geographical areas (GAs) between FY15-FY17, one GA in the ninth city gas distribution round and six GAs in the 10th distribution round

during FY19. All the GAs awarded between FY15-FY17 are operational as on date. As per management, these new areas could potentially add over 1-1.5mmscmd over the next three-to-five years and improve its segment mix. Additionally, GGL’s recent allocation of six new GAs spread across Haryana, Punjab, Madhya Pradesh and Rajasthan will augment its presence in the north and west of India and enable diversification of its portfolio over the medium term.

Volume growth Chart


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Equity Research Pick of the Week – Retail Research • GGL is planning to set up 200 CNG stations across India in next two years, even as the government pushes the idea of electric vehicles. In FY19, GGL included 69 CNG

stations, the highest ever to its count of more than 344 CNG stations. Because of this move, volume growth in CNG segment is expected to drive double-digit over FY20-22E. This creates more stability in volume trends and also a stronger margin profile for the company.

• Gujarat has the least vehicles to dispenser ratio resulting in low congestion at CNG stations. • GGL has seen volatile trend of volume growth over the past, at a range of 5.2-6.8mmscmd over the last 12 quarters (from Q1FY17 to Q4FY19). Company has plans

to focus more on the growth of CNG and domestic PNG segment. Overall, Increase in both the CNG as well as industrial PNG demand could drive its volume growth momentum and bring stability to margins.

Margins continue to rise ahead GGL’s EBITDA margin improved sharply in Q1FY20 on account of price hikes, sharp volume growth and relatively stable costs. EBITDA margin ramped up to 17.8% vs. 14.1% in Q1FY19.

GGL had taken an appropriate price hike in early October to adjust rising LNG costs. The price hike could help the company to improve the margins in the coming quarter. We believe gross margins will remain healthy in the coming quarters. GGL’s focus remains on striking a balance between right volumes and margins at appropriate time intervals. Hence, GGL has selectively taken some pricing correction to ensure volume growth over the medium term. Margins

EBITDA/scm has been on rising trend over the last two quarters EBITDA/scm for the quarter stood at Rs 5.6 (v/s Rs 4.2 in Q1FY19 and Rs 4.3 in Q4FY19). This is the highest-ever EBITDA/scm reported by the company, aided by lower spot LNG prices (average USD5.4/mmbtu in Q1FY20 v/s USD8.9 in Q1FY19 and USD7.4 in Q4FY19). The rise in margins in Q1FY20 is also attributable to higher spot LNG sourcing in Q1FY20 (40.6% of total) vs 14-18% in previous quarters. The APM PMT proportion fell to 21.6% vs 28-32% in previous quarters. The balance is accounted by long term BG contract for LNG and Qatar RasGas. If LNG prices rise sharply GGL has the option to switch to APM/PMT or BG LT contract. However the sharp spike in margins may not be sustained in that case.


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Cost, Realization and EBITDA per scm

Favorable demand environment for CGD business

• Gujarat is amongst the highest natural gas consuming state in India and CNG operated vehicles are increasing on account of the pricing economics of natural gas compared with other conventional fuels. Gujarat Gas is expected to benefit from the continued increase in natural gas demand (CNG and PNG) in Gujarat. Interestingly, given the increased levies on auto-fuels, a price cut post the gas price cut on Oct 01, 2019 would further enhance the attractiveness of CNG. On running cost basis, CNG is competitive by 45-60% vs alternative fuels.

• With several programs and initiatives being announced to bolster city gas demand, the expected growth in consumption under this category is around 10 percent between FY18 and FY30. The sector regulator Petroleum and Natural Gas Regulatory Board (PNGRB) launched 9th CGD Bidding Round on 12th April, 2018 for 86 Geographical Areas (GAs) covering 174 districts (156 complete and 18 part) in 22 states/ union territories, 24% of India’s geographical area and 29% of its population. Further, PNGRB also launched the 10th CGD Bidding Round on 8th November, 2018 for 50 Geographical Areas (GAs) covering 124 districts (112 complete and 12 part) in 14 states, 18% of India’s geographical area and 24% of its population.

• Going forward, the increasing number of CNG variant models by car manufacturers could also increase the number of CNG vehicles and lead to higher CNG demand. • Domestic gas consumption is at a very early stage and we expect healthy opportunities for further growth. Expansion of imported RLNG handling capacity in India

is going on, which is expected to result in higher availability of cheaper as well as environment-friendly fuel in the future. • Government of Gujarat has initiated a CNG Sahbhagi Scheme and it is pushing for this market in other way. It has eased land requirement from 1000 square meter

to about 500-550 square meter and permission process has been speeded up in Gujarat. So ecosystem around GGL has been improved and in last budget, Gujarat government allocated 1,000 crore for CNG buses.

Continues to expand network though aggressive capex plans and entering into new GAs • GGL has a presence of around 1,69,500 square kilometres of licensed area under its umbrella and continues to hold the leadership position as the largest CGD

Company in the country. It caters to more than 13.5 lakh residential consumers, over 12,300 commercial customers, dispensing CNG from 344 CNG stations. It also provides clean energy solutions to over 3,500 industrial units through its wide spread operations with around 23,200 kilometres of Natural Gas pipeline network.

• GGL connected around 1 Lakh household customers and added 63 new CNG stations during FY19. Sales volume have grown by 6% in the residential and 10% in transport (CNG).

• GGL is planning to set up 200 compressed natural gas (CNG) stations across India in the next two years, even as the government pushes the idea of electric vehicles.


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• GGL has an annual capex plan of Rs 450-500cr, aimed at growing the penetration in the operating areas as well as an expeditious rollout of the distribution network in the newly acquired geographical areas (GAs).

• GGL has sought shareholders nod to raise borrowing limit of the company to Rs 15,000cr from current Rs 10,000cr to help meet fund requirement for its business expansion.

• After a legal battle of about 27 months, the Gujarat High Court has in Sept 2018 ruled in favour of GGL in a case relating to unauthorised development of CGD network in Ahmedabad district area by the private sector player Adani Gas.

• Under 9th round of Gas bidding, GGL got one Narmada (Rajpipla) Dist, while it had bid for 21 areas. • Under 10th round of Gas biding, GGL got six areas, while it had bid for seven areas.

GGL Market share in CGD market

In talks to buy the entire 50 percent stake of GAIL Gas in Vadodara Gas GGL is looking to buy the entire 50 percent stake of GAIL Gas in Vadodara Gas Ltd (VGL). The size of the deal is expected to be about Rs 200-250cr for an enterprise valuation of about Rs 500cr of VGL. GGL, controlled by Gujarat State Petronet Ltd (GSPL) was earlier looking to buy a minority stake in VGL from GAIL, but later decided to buy out the entire stake. Vadodara city has the oldest CGD network in the country that was set up by the local municipal corporation in 1972. In 2013, it formed a 50:50 joint venture company with Gail Gas called VGL as per the Petroleum and Natural Gas Regulatory Board (PNGRB) Act 2006, with an authorized share capital of Rs.215cr. VGL had outlined a capital expenditure plan of Rs. 200cr in the first five years wherein it would take the number of household connections from 75,000 in 2013 to 180,000 in 2018. The number of commercial connections has remained stagnant at around 2,500 and it added about 30,000 households in this period. VGL operates eight CNG stations in the city too. This acquisition could boost its presence in Gujarat and provide volume growth and other synergies going forward.


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Concerns Regulatory and administrative approvals The implementation and operation of CGD network requires various regulatory and administrative approvals from different constituted bodies and local authorities and authorities consume enormous time in doing this because of scarce resources. It leads to avoidable delays in execution and in value realization and maximization.

Further regulatory authorities have a say in fixing costs and margins. Any adverse decision in this regard could impact the revenues and margins of CGD companies like GGL. PNGRB has floated a concept paper in June 2019 limiting post tax return on equity of CGD companies to 14%. In case this is implemented, the margins and profitability of CGD companies including GGL could fall.

Limited CNG demand in Gujarat Comparatively Gujarat’s cities are smaller than Delhi NCR and Mumbai. Smaller city spread reduces distance travelled and makes the economics of converting a car to CNG less favorable as the period of break-even rises accordingly. In addition given these are smaller cities, people often stay within ~5 km radius of their usual commute (work, shopping etc) unlike Delhi and Mumbai, where expensive real estate forces people in suburbs raising requirement for commuting.

Sharp rise in LNG prices and emerging competition Sharp increase in input gas cost may take time to pass through to the customer and hence can result into stress in the working capital. Entry of new players post the end of its marketing exclusivity will weaken its quasi monopoly in the state. Gujarat Gas' five-year long marketing exclusivity for city gas distribution in Morbi ended recently, but it still has network exclusivity for a 25-year period.

Currency Volatility The cost of domestic gas and LNG processed by GGL is US Dollar denominated. A sharp depreciation in the INR could therefore adversely impact GGL's cost of gas, volumes and therefore its margins.

Switching to alternate fuels by tiles manufacturers at Morbi Lately cheaper propane and LPG were emerging as alternatives to PNG at Morbi. Coal prices are about 30% cheaper than gas. If customers of Gujarat Gas Ltd decide to switch to alternate fuels due to the cost difference, it could impact the revenues and margins of GGL. The fuel also faces threat in the form of disparity in the tax structure compared to alternate fuels.

Natural Gas Price Sharp and sudden rise in NG/LNG prices globally could mean higher landed spot cost for GGL and the consequent impact on demand, volumes and margins. In normal circumstance, GGL could have neutral impact as CGD companies pass on changes in gas prices through change in CNG/PNG pricing. However the comparative prices of alternate fuels will have to be seen to effect any substantial rise in PNG/CNG prices.

Slowdown in demand from balance industries and also from morbi tile manufacturers If the current economic slowdown continues or intensifies, then demand for PNG from industries could fall resulting in volume growth being affected for GGL. Further if the export and domestic momentum for tile manufacturers falters, similar outcome could ensue for GGL. IMO regulations, 2020 could increase costs of shipping of LNG for all importers impacting the landed cost of LNG.

Seasonality: Q2 is typically a dull quarter for GGL due to festivals (Janmashtami).

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Equity Research Pick of the Week – Retail Research Natural Gas Prices- (two years)

Q1FY20 Results review GGL reported excellent numbers in Q1FY20, revenue grew by 48.1% (YoY) to Rs 2,614.6cr led by ~43% volume growth due to higher sales in Morbi, Gujarat, aided by the National Green Tribunal’s (NGT) recent order directing ceramic units in the district to dismantle their coal gasifiers and switch over to LNG/PNG.

PNG industrial/commercial volumes stood at 7.2mmscmd (+60% YoY, +67.4% QoQ), and PNG household volumes stood at 0.5mmscmd (unchanged on YoY and QoQ basis) and CNG volumes stood at 1.5mmscmd (+7.1% YoY, unchanged QoQ). On profitability front, lower gas prices and other expenses helped to rise its profitability, PAT increased by 92.5% (YoY) to Rs 233.7cr vs Rs 121.4cr in Q1FY19.

View and valuation India’s Natural Gas supply and demand outlook has seen structural changes over the recent past. The Government of India (GoI) wants to make India a gas-based economy by boosting domestic production and relying on cheap imported LNG. India has set a target to raise the share of gas in its primary energy mix to 15% by 2022 from 7% in 2018. GGL has been continuously growing and expanding its horizon by venturing into new geographic areas and is committed to reach every possible Natural Gas user across its licensed expanse of around 1,69,500 square kilometres through its ever growing pipeline network spread across 41 districts and six states and one union territory. In Q1FY20 GGL has performed better, where in volumes rose sharply and margins recovered sharply. Investors would now watch for some stability in margin performance. GGL could report the best profit growth among peers in FY19-FY21. GGL is expected to report its highest volume growth during FY20, aided by higher demand from ceramic tile makers in Morbi, Gujarat. Higher contribution from CNG, lower reliance on industries for PNG and lower volatility in its margin/volume trajectory going forward could improve its valuations. We feel investors could buy the stock at the CMP and add on dips to Rs 157-160 band (12.75x FY21E EPS) for sequential targets of Rs 192.50 (15.5x FY21E EPS) and Rs 211.50 (17.0x FY21E EPS) in 3-4 quarters. At CMP of Rs 175 the stock quotes at 12.4x FY21E EPS.

(Source: Investing.com, HDFC sec)

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Peer Comparison

Particulars (Rs in Cr) Sales (Rs) EBITDA (Rs) PAT(Rs) EPS (Rs) P/E (Rs) EV/EBITDA (Rs)

FY20E FY21E FY20E FY21E FY20E FY21E FY20E FY21E FY20E FY21E FY20E FY21E

Gujarat Gas 9931.1 11577.4 1389.4 1573.4 701.6 856.3 10.2 12.4 17.2 14.1 9.7 8.4

Mahanagar Gas 3119.5 3463.4 955.9 1003.0 626.5 673.5 63.4 68.2 13.8 12.9 8.8 8.6

Indraprastha Gas 6405.0 7430.0 1580.0 1746.0 992.0 1104.0 10.2 11.4 34.0 30.4 14.0 12.5

Particulars (Rs Cr) Q1FY20 Q1FY19 YoY (%) Q4FY19 QoQ (%)

Total Operating Income 2614.6 1765.1 48.1% 1907.6 37.1%

Raw Material Consumed 1952.1 1350.9 44.5% 1463.2 33.4%

Stock Adjustment 0.1 -0.5 -123.4% 0.6 -82.5%

Employee Expenses 46.4 36.0 28.8% 45.1 2.9%

Other Expenses 149.5 130.1 14.9% 144.5 3.5%

Total Expenses 2148.1 1516.6 41.6% 1653.4 29.9%

EBITDA 466.5 248.6 87.7% 254.1 83.6%

EBITDA Margin-% 17.8% 14.1% 370bps 13.3% 450bps

Depreciation 77.9 70.7 10.2% 72.2 7.8%

EBIT 388.6 177.9 118.4% 181.9 113.6%

Other Income 22.5 58.4 -61.5% 18.7 20.5%

Interest 51.0 48.6 4.9% 49.7 2.5%

Profit before Tax 360.2 187.8 91.8% 150.8 138.8%

Tax 126.5 66.4 90.6% 34.3 268.7%

Reported PAT 233.7 121.4 92.5% 116.5 100.5%

Adjusted PAT 233.7 121.4 92.5% 116.5 100.5%

PAT Margin-% 8.9% 6.9% 200bps 6.1% 280bps

EPS (Adj) (Unit Curr.) 3.4 1.8 0.9 1.7 1.0

(Source: HDFC sec)


Financials: Income Statement

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Particulars, FY15 FY16 FY17 FY18 FY19

Sales Cr 9006.3 6105.9 5092.6 6174.6 7754.4

Sales Volume- MMSCMD

CNG

Sales -MMSCMD 1.0 1.0 1.2 1.3 1.4

CNG Price (Rs/Kg) 48.5 46.3 47.0 49.7 51.5

PNG

Domestic 0.4 0.5 0.5 0.5 0.5

Commercial 0.3 0.6 0.1 0.2 0.0

Industrial 4.8 3.5 3.7 4.2 4.6

Total PNG 5.5 4.6 4.2 4.9 5.1

Sales Volume (MMSCMD) 6.5 5.6 5.4 6.2 6.5

Realisation/Scm 38.0 29.9 25.7 27.3 30.2

Realisation Growth-% 6.6% -21.3% -13.8% 6.0% 10.5%

EBITDA 1106.1 728.0 743.3 895.4 984.6

EBITDA/SCM 4.7 3.6 3.8 4.0 4.2

PAT/SCM 1.9 0.9 1.1 1.3 1.8

Particulars, Rs in Cr FY17 FY18 FY19 FY20E FY21E

Revenue from operations (Net) 5092.6 6174.6 7754.4 9931.1 11577.4

Cost of materials consumed 3838.0 4678.6 6084.0 7627.0 8914.6

Changes in inventories of Natural Gas -0.1 -0.6 -1.1 1.0 1.2

Employee benefits expense 128.2 139.0 160.0 228.4 277.9

Other expenses 383.2 462.3 526.8 685.2 810.4

Total expenses 4349.3 5279.3 6769.8 8541.7 10004.0

EBITDA 743.3 895.4 984.6 1389.4 1573.4

Depreciation and amortization expense 257.3 271.8 288.0 312.1 325.4

EBIT 486.0 623.5 696.6 1077.3 1247.9

Other income 26.3 35.9 111.6 89.4 104.2

Finance costs 209.0 196.1 196.2 205.5 195.0

Profit before tax and exceptional Item 303.3 463.3 612.0 961.1 1157.1

Exceptional Item 0.0 0.0 17.9 0.0 0.0

Profit before Tax 303.3 463.3 594.1 961.1 1157.1

Profit/(Loss) After Tax 219.2 291.5 417.0 701.6 856.3

EPS 3.2 4.2 6.1 10.2 12.4

Financials: Income Statement


Operating Metrics

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Particulars, Rs in Cr FY17 FY18 FY19 FY20E FY21E

EBT 303.3 463.0 594.1 961.1 1157.1

Depreciation and Amortization 257.3 271.8 288.0 312.1 325.4

Interest /Dividend paid -20.4 195.5 193.3 205.5 195.0

Other Adjustment 221.5 -18.6 -90.5 -89.4 -104.2

(Inc)/Dec in working Capital -12.3 -23.0 -28.9 -201.0 -357.6

Tax Paid -48.9 -104.0 0.0 -259.5 -300.9

CF from Operating Activities 700.5 784.7 956.1 928.9 914.9

Capital expenditure -480.5 -455.5 -537.6 -450.0 -450.0

Proceeds from sale of fixed assets 0.1 0.3 7.2 7.5 7.9

(Purchase)/Sale of Investment 1.8 0.2 -169.6 -12.6 -1.9

Others 20.4 25.4 96.1 71.5 83.4

CF from Investing Activities -458.2 -429.6 -603.9 -383.6 -360.7

Inc/(Dec) in Share capital 4.0 0.0 0.0 0.0 0.0

Inc/(Dec) in Debt 17.6 -24.8 -113.9 -150.0 -150.0

Dividend and Interest Paid -272.9 -248.5 -235.5 -329.5 -339.6

CF from Financing Activities -251.4 -273.3 -349.4 -479.5 -489.6

Net Cash Flow -9.0 81.8 2.7 65.8 64.6

Opening Balance-Cash in hand 22.8 13.8 95.6 98.4 164.2

Closing Balance-Cash in hand 13.8 95.6 98.4 164.2 228.9

Particulars, Rs in Cr FY17 FY18 FY19 FY20E FY21E EQUITY AND LIABILITIES Share capital 137.7 137.7 137.7 688.4 688.4 Reserves and surplus 1526.0 1728.7 2067.6 2645.3 3357.0 Shareholders' funds 1663.7 1866.4 2205.3 3333.7 4045.4 Long-term borrowings 2291.4 2213.0 2089.2 1939.2 1789.2 Deferred tax liabilities (Net) 989.7 1050.6 1086.9 923.9 831.5 Other Long term liabilities 0.0 0.0 59.5 62.5 65.6 Long-term provisions 30.8 33.4 39.7 40.5 41.3 Non-current liabilities 3311.9 3297.0 3275.3 2966.0 2727.6 Short-term borrowings 7.3 1.3 0.0 0.0 0.0 Trade payables 317.4 296.5 355.8 408.1 412.3 Other current liabilities 1049.1 1193.1 1312.9 984.7 935.4 Short-term provisions 26.0 7.6 8.3 8.6 8.9 Current liabilities 1399.8 1498.5 1677.0 1401.4 1356.7 TOTAL 6375.4 6661.8 7157.5 7701.1 8129.7 ASSETS Fixed assets 5407.4 5595.7 5778.9 5916.8 6041.4 Non-current investments 92.9 17.4 42.1 54.7 56.6

Balance Sheet

Cash Flow


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Long-term loans and advances 65.4 69.5 69.5 76.4 84.0 Other non-current assets 282.6 273.0 230.6 253.6 279.0 Non-current assets 5848.3 5955.6 6120.9 6301.5 6461.0 Current investments 0.0 0.0 0.0 0.0 0.0 Inventories 41.7 56.8 69.4 81.6 95.2 Trade receivables 347.5 391.7 510.3 653.0 761.3 Cash and Bank Balances 64.5 140.1 313.2 514.1 650.1 Short-term loans and advances 1.4 1.5 1.2 1.2 1.3 Other current assets 72.0 116.1 142.5 149.6 160.8 Current assets 527.1 706.2 1036.6 1399.6 1668.7 TOTAL 6375.4 6661.8 7157.5 7701.1 8129.7

Particulars FY17 FY18 FY19 FY20E FY21E No of Equity Shares-cr 68.8 68.8 68.8 68.8 68.8 Enterprise Value-cr 14281.0 14121.0 13822.8 13471.8 13185.8

EPS 3.2 4.2 6.1 10.2 12.4 Cash EPS (PAT + Depreciation) 6.9 8.2 10.2 14.7 17.2 Book Value Per Share(Rs.) 24.2 27.1 32.0 48.4 58.8

PE(x) 54.9 41.3 28.9 17.2 14.1 P/BV (x) 7.2 6.5 5.5 3.6 3.0 Mcap/Sales(x) 2.4 2.0 1.6 1.2 1.0 EV/EBITDA 19.2 15.8 14.0 9.7 8.4

EBITDAM (%) 14.6% 14.5% 12.7% 14.0% 13.6% EBITM (%) 9.5% 10.1% 9.0% 10.8% 10.8% PATM (%) 4.3% 4.7% 5.4% 7.1% 7.4%

ROCE (%) 12.9% 16.2% 18.8% 22.1% 23.2% RONW (%) 13.2% 15.6% 18.9% 21.0% 21.2%

Current Ratio 0.4 0.5 0.6 1.0 1.2 Quick Ratio 0.3 0.4 0.6 0.9 1.2

Debt-Equity (x) 1.4 1.2 0.9 0.6 0.4

Key Ratios


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Daily Closing Price Chart

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Fundamental Research Analyst: Abdul Karim ([email protected])

HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 3075 3450 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600 SEBI Registration No.: INZ000186937 (NSE, BSE, MSEI, MCX) |NSE Trading Member Code: 11094 | BSE Clearing Number: 393 | MSEI Trading Member Code: 30000 | MCX Member Code: 56015 | AMFI Reg No. ARN -13549, PFRDA Reg. No - POP 04102015, IRDA Corporate Agent Licence No.-HDF2806925/HDF C000222657 , Research Analyst Reg. No. INH000002475, CIN-U67120MH2000PLC152193. Disclosure: I, Abdul Karim, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. 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Date: 7th October 2019 Gas... · 2019-10-07 · India’s Natural Gas supply and demand outlook has seen structural changes over the recent past. The Government of India (GoI) wants

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