HDFC Securities premise for Gujarat Gas is based volume growth at 20% CAGR over FY21-23E; portfolio of mature, semi-mature, and new geographical areas (GAs); and compelling valuations, given superior return ratios among the city gas distribution players. Q1FY22 EBITDA was 34% above our estimate and APAT was 43% above, owing to 44% above-than-expected per unit EBITDA margin, supported by lower gas cost, lower-than-expected interest cost and higher-than-expected other income, offset by 7% lower volumes.

Volumes: Blended volume stood at 10.01mmscmd (HSIE 10.77), supported by industrial demand (7.78mmscmd or 78% of volume mix). CNG volumes were at 1.55mmscmd (+127% YoY, -9% QoQ), domestic PNG volumes at 0.59mmscmd (+4% YoY, -19%QoQ) and commercial PNG volumes at 0.09mmscmd (+167% YoY, -21% QoQ). The company's gas sales volume was impacted by the second COVID-19 wave during Q1.

Margin: Per unit gross spread, at INR 10.43 (+11% YoY, +48% QoQ), benefited from lower raw material costs due to domestic contracts of 2.0mmsmcd in Q1. Per unit EBITDA came in at an all-time high of INR 7.94/scm (+61% YoY, +56% QoQ). We expect per unit EBITDA of INR 6.1/6.3/scm in FY22/23E.