Gujarat Gas Q1 profit misses estimates; brokerages stay bearish, trim targets amid weak volume guidance

So far this year, Gujarat Gas has rallied around 28 percent, beating benchmark Nifty's returns of 11 percent during this period.

Brokerages remain bearish on Gujarat Gas despite the company reporting a positive set of numbers for the quarter ended June 2024. While its net profit surged 53 percent on-year to Rs 330 crore, it failed to beat Street estimates as disappointment in margin overshadowed a healthy beat on volumes.

Analysts remain cautious about the stock because of conservative volume guidance by the management and expensive valuations.

Gujarat Gas' revenue from operations went up 18 percent YoY to Rs 4,615 crore in Q1FY25. The surge in the topline and bottomline was due to the robust volume growth.

Listing out the key reasons for good quarterly numbers, India’s largest city gas distribution company said that a deduction in spot gas prices and an increase in volumes led to a rise in profits in Q1FY25 as compared to the numbers last year.

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CLSA has an 'Underperform' rating on Gujarat Gas with a target price of Rs 420 per share as management has guided for a significant 40 percent quarter-on-quarter (QoQ) decline in Q2 volumes from the Morbi facility, citing a weak business environment in the ceramic tile industry as the main reason for this downturn.

Gujarat Gas management is optimistic about volume growth, driven by: a positive response to the new pricing scheme designed to reduce gas price volatility, as seen in customer interest from Morbi and Surendranagar; The introduction of the FDODO scheme, which opens new opportunities for CNG growth; and Sustained strong growth momentum in CNG.

Yet, Jefferies has maintained its "underperform" rating on Gujarat Gas but has lowered its target price to Rs 450 from Rs 460 per share earlier.

The brokerage has cut its FY25/26 volume estimates by 4 percent, aligning with the company’s lowered guidance of 5-7 percent, and reduced FY25/26 EPS estimates by 6 percent and 5 percent, respectively.

Nomura has issued a "reduce" call on the stock with a target price of Rs 470 per share. According to Nomura, despite the weak guidance and other challenges, Gujarat Gas remains one of the most expensive gas utility companies globally, currently trading at 22.6x FY26 P/E.

Also Read | Gujarat Gas Q1FY25 results: Net profit surges 53% to Rs 330 crore on back of volume growth

Motilal Oswal took a contrarian stance, maintaining a 'buy' rating on the stock with a target price of Rs 715, valuing it at 30x FY26E EPS. The domestic brokerage's bullish outlook is based on the belief that Gujarat Gas has strong long-term volume growth prospects, supported by adding new industrial units and expanding existing ones.

"It is aggressively investing in infrastructure to push industrial gas adoption in Thane rural, Ahmedabad rural, and newly acquired areas in Rajasthan," the domestic brokerage highlighted.

Gujarat Gas stock ended 2.6 percent lower at Rs 620.55 on the National Stock Exchange (NSE) in the previous session. So far this year, the stock has rallied around 28 percent, beating benchmark Nifty's returns of 11 percent during this period.

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