Gujarat Gas’s (GGAS) 1QCY2011 PAT declined by 12.2% qoq to `72cr (`82cr) on lower gross spread. However, on a yoy basis, PAT grew by robust 16.9% during the quarter. We recommend Buy on the stock.
Gross spread cools off sequentially on higher LNG price: For 1QCY2011, GGAS reported top-line growth of 29% yoy to `529cr (`410cr). Average realisations increased to `17.2/scm (`13.8/scm) during the quarter. Gross gas spread cooled off to `4.6/scm during the quarter on account of higher cost of LNG procured to meet the company’s gas requirements.
Outlook and valuation: GGAS’s volumes during the quarter were supported by higher gas flow from RLNG, following lower supply from the PMT field. Thus, reliance on RLNG increased to support the company’s volume growth.
The company has also entered into a firm contract with British Gas (BG) to meet its growth requirements. The company continues to explore entering into such long-term RLNG contracts and, thus, soften supply-side constraints. Besides volume growth, to maintain margins, the company plans to price its gas to its various consumers, taking into consideration the pricing of alternative fuels. We believe through this strategy, the company will be able to maintain its volume growth and margins going ahead. Thus, we recommend Buy on the stock with a target price of `418.
The company has also entered into a firm contract with British Gas (BG) to meet its growth requirements. The company continues to explore entering into such long-term RLNG contracts and, thus, soften supply-side constraints. Besides volume growth, to maintain margins, the company plans to price its gas to its various consumers, taking into consideration the pricing of alternative fuels. We believe through this strategy, the company will be able to maintain its volume growth and margins going ahead. Thus, we recommend Buy on the stock with a target price of `418.
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