Edelweiss is bullish on Gujarat Gas has recommended buy rating on the stock with a target price of Rs 1123 in its research report dated November 06, 2017.
Edelweiss' research report on Gujarat Gas
Gujarat Gas (GGL) reported subdued Q2FY18 EBITDA of INR2bn (down 3% YoY, 25% QoQ; 19% below estimate). Volumes at 5.7mmscmd (up 11% YoY, down 6% QoQ) missed estimate 3%, due to temporary disruption in business activity impacted by GST and heavy flooding. EBITDA margin, at INR3.8/scm, missed by 16%, amidst volume disruption. While QTD volumes have recovered to 6mmscmd, margin remains subdued due to spike in spot LNG. We expect cyclical near-term volume revival as PNG remains economic versus alternatives. We estimate 16% volume CAGR over FY17-22, driving 37% EPS CAGR. We have revised up FY19E EPS 4% due to 6% higher EBITDA margin, while revising down FY19E volumes 3%. Maintain ’BUY’ with revised TP of INR1,123 (INR1,034 earlier) amidst long-term sanguine prospects.
We remain upbeat on structural prospects given: 1) new CGD coverage in high potential geographies will add ~3mmscmd volumes; 2) robust organic growth (~3mmscmd addition) as PNG has gained further competitiveness; and 3) margin to remain firm. We estimate EPS CAGR of 37% over FY17-22. We maintain ‘BUY/SO’ with revised DCF-based TP of INR1,123.
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