Gujarat Gas Company’s (GGAS) Q1CY11 results were inline with our expectations as net sales grew by 29.6% YoY to Rs5.2bn (PINCe Rs5.2bn). EBITDA/scm was flat at Rs3.3, however, OPM contracted by 419bps YoY due to increased contribution of high priced R-LNG. Consequently, net profit increased by 16.9%YoY to Rs721mn (PINCe Rs767mn).

Volume growth remains flat: GGAS’s Q1CY11 volume increased 4.1% YoY and remained flat QoQ at 3.37mmscmd. Industrial sales were impacted marginally due to increasing gas cost, however, the volumes for CNG segment remained static. EBITDA/scm is flat YoY at Rs3.3, however, decreased by Rs0.6 QoQ due to 15% spike in average gas cost against increase in average realisation of ~5%.

High cost R-LNG contribution to increase in near future: There are concerns related to sourcing of domestic gas due to decline in output from KG and PMT fields. In light of current circumstance, GGAS has signed 1.0mmscmd contract with BGIES for CY11 and CY12. High cost gas should create pressure in maintaining margins as regular price hikes may be difficult in some segments. GGAS has already taken price hike of ~16% for its entire segment in CY10 to negate the impact of higher R-LNG cost.

Expansion plans: GGAS is incurring a capex of ~Rs1.5bn/ year to increase network in its current operational area (Surat, Ankleshwar and Bharuch). The company has bid for Bhavnagar and Kutch in 3rd round of CGD bidding.