Buy Gujarat Gas; target of Rs 403: Prabhudas Lilladher

Prabhudas Lilladher's research report on Gujarat Gas

We increase our FY21E earnings by 24% to factor in sharp volume recovery and margin expansion given benign spot LNG prices. FY22-23E earnings are increased by 8-10% as we increase margins and volumes. GGAS reported strong Q2 earnings led by higher than expected volumes and record spreads due to opportunistic sourcing of LNG. GGAS’s competitive intensity will come down given the ban on cheaper liquid fuels. This will aid to smoothen margin and earnings for GGAS, thereby reducing valuation discount to IGL. GGAS remains best play on rising trend to ban polluting fuels in industrial areas.

Outlook

Strong demand for Indian ceramic tiles in US given that the country has imposed duty of 200-350% on Chinese imports will drive Morbi gas demand, which is the ceramic hub of India and accounts for 60% of GGAS demand. Reiterate BUY with a revised TP of Rs403 (from Rs388).

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