Gujarat Gas Company Ltd
Q4CY07 Update

Key Data

CMP Rs 314.95

Date February 27th 2008

Sector Gas Distribution

Face Value Rs.2

BSE Code 523477

52 Week H/L Rs 379/244

Market Cap Rs 2020 Cr

Investment Rationale

Sales volumes in Q4CY07 stood at 328 mmscm, driven by strong growth across all customer segments especially CNG which increased by 30 per cent to 19 mmscm in the quarter. For the full year, volumes grew by 8 per cent to 1177 mmscm. GGCL is the only gas distribution company in India to buy gas from multiple sources and to sell it at competitive rates at market plus margins. The long term gas contracts are at a fixed price and hence volatility in natural gas prices does not impact the company. Consequently, the operating margins continue to remain stable for the company. GGCL has a wide pipeline network of more than 2200 km in Gujarat. The company has a monopoly in Surat, Bharuch, Ankleshwar, Jhagadia and Kim-Karanj. The company is the only one running CNG stations in South Gujarat and generating high margins in this business coupled with higher growth. The company has also developed an application called ‘Co-generation’ which is a combination of power and heat. To sustain the momentum in future, the company continues to invest in infrastructure. Late CY06, the company had entered into two contracts of 1.65 mmscmd and 0.7 mmscmd to procure additional gas from the Panna-Mukti-Tapti (PMT) consortium. The gas from the Tapti field has started flowing from September 2007 and an average of 1.43 mmscmd of gas from Tapti was received during the quarter. Recently, the Jhagadia operations have started adding to the revenues from Q2CY07. The Vapi operations are expected to commence by Q1CY08.

Healthy volumes continued During the quarter, the company drew additional natural gas supply of 1.43 million standard cubic metres per day (mmscmd) from Tapti gas field to take the total volume of gas sold to 3.65 MMSCMD. These gas volumes were nearly 7 per cent higher as against the corresponding quarter of previous year and 27 per cent higher from the September 2007 quarter.

Revenue up by 27 per cent Revenue increased by 27 per cent to Rs 338 crore as against Rs 266 crore in the previous quarter, driven by strong growth across all segments especially CNG. CNG sales increased by 30 percent to 19 mmscm in the said quarter. GGCL has converted 5791 vehicles to CNG in its own areas of operations.

Valuations

At current market price of Rs 314.95, GGCL is quoting at a PER of 14.59x. On EV/Sales and EV/ EBIDTA basis it is quoting at 1.72x and 7.70x respectively.

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