The board of Gujarat Gas approved a scheme of arrangement and amalgamation, involving Gujarat State Petroleum Corporation, GSPC Energy, and Gujarat State Petronet merging into Gujarat Gas, causing brokerages rushing to upgrade their the target prices on the city gas distribution player.
Additionally, Gujarat Gas's gas transmission business will be carved out and listed separately as GSPL Transmission Limited (GTL) on stock exchanges.
Gujarat Gas shares jumped to a fresh 52-week high in trade. At 9.35 am, shares of the gas player were quoting Rs 678.25 on the NSE, higher by around 11.5 percent compared to the previous session's closing price.
The scheme involves the demerger of GGL's Gas Transmission Business, which will be carved out and listed separately as GSPL Transmission Limited (GTL) on stock exchanges.
Equirus upgraded Gujarat Gas to 'add' with a target price of Rs 667 per share. The brokerage believes the merger, demerger plan was 'well thought'. The new entity will benefit from its position as the second largest gas trading company in India. Additionally, with rising gas consumption and Gujarat Gas's presence across the value chain, the company is set to see benefits.
The merger of Gujarat State Petroleum Corporation and Gujarat State Petronet is value accretive, said Antique Broking. The brokerage bumped up its target price on the firm to Rs 726 per share, up from Rs 690 earlier. This indicates an upside of around 20 percent from the previous close.
The brokerage added that Gujarat Gas will be able to make "quick use" of the Rs 72,000 crore carry-forward losses in Gujarat State Petroleum Corporation. Also, there is a higher intrinsic value of both GSPC and GSPL than is being assigned by estimates.
Emkay Global raised its rating on Gujarat Gas to 'reduce', from 'sell', with a hike in target price from Rs 500 per share to Rs 600 each.
"The merged entity would benefit from size, simple structure, and synergies, while challenges likely being faced are complexity of business with global gas exposure, capital allocation, and numerous Gujarat govt entities still holding sizable stake," said the brokerage.
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Merger, demerger plan
The proposal specifies the shareholding arrangements for the existing shareholders of GSPL and GSPC. Shareholding arrangements under the scheme include the issuance of 10 equity shares of Rs 2 each in Gujarat Gas for every 305 equity shares of Rs 1 each held in Gujarat State Petroleum Corporation.
Similarly, Gujarat State Petronet shareholders will receive 10 equity shares of Rs 2 each in Gujarat Gas for every 13 equity shares of Rs 10 held.
Regarding the new transmission entity, Gujarat Gas shareholders will receive 1 equity share of Rs 10 each in GSPL Transmission Limited (GTL) for every 3 equity shares of Rs 2 held in Gujarat Gas.
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