Q3 volumes came at 11.4mmscmd, which should rise to 11.8mmscmd in Q4FY21E. Gujarat Gas’ (GGL’s) Q3FY21 Ebitda at Rs 6.1 bn (up 66% y-o-y, down 16% q-o-q) came bang in line with our estimate, but 41% above consensus. Volume surged 23% y-o-y (up 16% q-o-q) led by Morbi, enabling operational leverage in Ebitda by 35% y-o-y (down 28% q-o-q) to Rs 5.8/SCM.
After a record Q3FY21, Jan’21 volumes grew 4% q-o-q with new user capacity starts in Q4. New geographies and CNG stations add at 3x of earlier run-rate should enable 10% plus CAGR. Advance purchase of low cost LNG cargoes enabled gross margin/SCM rise of 19%. Strong user demand and high cost of substitutes should sustain healthy Rs 5/SCM Ebitda margin. Maintain Buy with revised TP of Rs 500.
Volumes surged 23% y-o-y to all-time high; more to come: Q3 volumes came at 11.4mmscmd, which should rise to 11.8mmscmd in Q4FY21E. GGL added 84 new CNG stations in 9mFY21, to a total of 484. It is planning to add 150 CNG stations each year, 3x earlier level. Most of the new stations are on city outskirts and highways, some with LNG facilities. This may drive network utilisation higher and hence profitability, in our view.
Healthy margin despite surge in LNG input cost: While input spot LNG prices surged 27% y-o-y, GGL enhanced gross margin per unit by 19% y-o-y (to
`7.8/SCM) due to advance purchase of cargos at low prices as well as cost controls, enabling unit opex dip of 12% y-o-y. Furthermore, operational leverage enabled 35% y-o-y rise in Ebitda margin/SCM. These benefits will diminish in Q4FY21 due to seasonal 100% plus q-o-q surge in spot LNG prices.
Outlook: Powerful growth ahead—Factoring in strong volumes and positive management tone, we have hiked volume forecast by 14.4%/14.1%/6.8% and EPS by 40.7%/ 36.8%/33.6% for FY21/FY22/FY23. GGL remains our sector top pick with DCF-based revised TP of Rs 500 (earlier Rs 373) at 16.1x FY22e PER. We maintain ‘BUY/SO’.
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