Motilal Oswal's research report on Gujarat Gas
GUJGA’s EBITDA came in 13% below our est. at INR3.9b due to 6% lower than est. volumes at 9.2mmscmd and 7% lower than est. EBITDA/scm at INR4.6. EBITDA/scm declined 34% QoQ as the company had to sharply cut gas prices to stay competitive against propane. Currently natural gas is priced at INR38.5/scm (excluding VAT), while propane is priced at INR35/scm at Morbi. EBITDA/scm guidance stands at INR4.5-5.5/scm. Morbi volumes improved to ~4mmscmd in 1QFY24 (vs. 3.6mmscmd in 4QFY23) as a result of price cuts by GUJGA. The management highlighted that peak volume potential at Morbi stands at ~8-8.5mmscmd.
Outlook
GUJGA’s long-term volume growth prospects remain robust, with the addition of new industrial units and the expansion of existing units. Hence, we reiterate our BUY rating on the stock with a TP of INR550 (at 26x FY25E EPS). Key risks include a poor ceramic outlook or a sustained discount of propane/LPG to natural gas.
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