Prabhudas Lilladher's research report on Gujarat Gas
We increase our FY21-23E earnings by 12-17% to factor in strong volume uptick and margin expansion. GGAS reported strong Q3 earnings and we are positive given 1) higher than expected volumes and strong spreads from operating leverage and lower gas cost 2) low competitive intensity post ban on cheaper liquid fuels in FY20, thereby smoothening earnings volatility and reducing valuation discount to IGL 3) remains best play on rising trend to ban polluting fuels in industrial areas. We believe strong demand for Indian ceramic tiles in US given an imposed duty of 200-350% on Chinese imports will drive Morbi gas demand, which is India’s ceramic hub and accounts for over 60% of GGAS demand.
Outlook
Reiterate BUY with a revised TP of Rs528 (Rs403) as we increase medium term volume and margin estimates.
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