Gujarat Gas Q4 Volumes Decline; Downgraded to Sell with Target Price 372

Gujarat Gas (GUJGA) reported decline of 4% YoY and 2% QoQ in total sales volume to 9.3mmscmd in Q4FY25 (PLe 9.7mmscmd). However, due to lower mix of industrial volume, EBITDA/scm of Rs5.4 beat our estimates of Rs4.7. EBITDA stood at Rs4.5bn (-24% YoY, +18% QoQ, PLe: Rs4.1bn, BBGe: Rs4.1bn) and PAT of Rs2.2bn (-30% YoY, +30% QoQ, PLe: Rs2.4bn, BBGe: Rs2.4bn). For the full year, EBITDA stood at Rs18.8bn, flat YoY while adj PAT stood at Rs11.5bn, +4% YoY. We build in 6% CAGR volume growth over FY25-27E and an EBITDA of Rs5.6/scm. Considering 1) the ongoing poor demand of building materials and 2) economics in favor of propane vs gas, we believe that the company is richly valued, trading at 24.7x FY27 EPS of Rs18.6. Downgrade to ‘Sell’ with a TP of Rs372 based on 20x FY27 EPS.

• Total volume decline YoY/QoQ: Total sales volume stood at 9.3mmscmd (-4% YoY, -2% QoQ, PLe 9.7mmscmd). CNG segment grew by impressive 11% YoY while PNG-domestic segment grew by 4.7% YoY. Industrial volume shrunk by 13% YoY. For the full year, total sales volume stood at 9.6mmscmd, +3% YoY. While CNG has been growing steadily, concerns remain on industrial segment due to demand of end user industry as well as cost economics vis-a-vis alternate fuel. We build-in 6% CAGR in total sales volume during FY25-27E.
• Lower industrial vol aids margin:Industrial/commercial sales volume stood at 56% of total sales volume in Q4FY25 vs 61% in Q4FY24 and 59% in Q3FY25. As industrial volume is the least remunerative in terms of EBITDA/scm, this boosted overall EBITDA/scm from Rs4.4 in Q3FY25 to Rs5.4 in Q4FY25. For the full year, EBITDA/scm stood at Rs5.4 vs Rs5.5 in FY24. We build in EBITDA/scm of Rs5.6 for FY26E as well as FY27E.
• Concall Highlights:1)gas prices at Morbi are Rs3-3.7/scm higher than propane,2)sourcing: APM 25%, short-term 40%, rest long term, no HH,3)expect 12% growth in CNG going forward- 2 lakh vehicles added in FY25,4)Morbi vol currently at 2.6-2.7mmscmd and is unlikely to grow in Q1FY26 due to poor demand and high gas prices vs propane,5)capex of Rs7.4bn done in FY25 and guidance of Rs10bn in FY26,6)guidance of Rs4.5-5.5 EBITDA/scm,7)other expenditure in the quarter included ~Rs300mn of one-offs like inventory, physical verification of assets, higher CSR expense etc,8)non-Morbi industrial volume grew by 9% YoY in Q4,9)CNG vol inside Guj grew by 8% YoY and 28% YoY for outside Gujarat region during the quarter,10)addition of ~60-70 CNG stations in FY26.