Prabhudas Lilladher's research report on Gujarat Gas
GGAS has underperformed the broader index by ~50% over last four months, as geopolitical tensions keep spot LNG prices at elevated levels of >USD30/mmbtu. Reports of ceramic units in Morbi switching to propane usage (competing fuel) have also impacted the stock performance. At CMP stock trades closer to -1 standard deviation consensus PER of last three years of 17.6x. We believe GGAS is very well placed to navigate this situation and has tied spot LNG purchase till Feb 2023 at ~USD28/mmbtu, when winter gas demand from EU will be highest. In the near term, we do not expect GGAS to compete with propane as prices are seasonally weak in Q2 and will increase in H2 (prices are higher in H2 for last five years except in FY19 due to pandemic). Further, sustained high spot LNG prices due to geopolitical tension will lead to more users setting up LPG plants which could put GGAS margins under pressure. In a high gas cost environment, we expect GGAS to prioritize margins over volumes (like in Q4FY22) and limit spot purchase to contracted amount. We lower our FY23/24E volumes by ~6%, but factor in higher margins and our earnings change is ~6% for FY23E. We factor in ~9% volume growth and ~18% CAGR earnings growth over FY22-24E.
We also reduce medium term volumes, even as we maintain margins of ~Rs6/scm and increase risk free rate to 7.4% (6.5% earlier) Accordingly, our revised DCF based PT stands at Rs553 (Rs650). Reiterate ‘BUY’.
At 10:34 hrs Gujarat Gas was quoting at Rs 424.70, up Rs 4.20, or 1.00 percent.
It has touched an intraday high of Rs 427.90 and an intraday low of Rs 422.00.
It was trading with volumes of 24,100 shares, compared to its thirty day average of 131,864 shares, a decrease of -81.72 percent.
In the previous trading session, the share closed up 2.85 percent or Rs 11.65 at Rs 420.50.
The share touched its 52-week high Rs 786.65 and 52-week low Rs 403.80 on 04 August, 2021 and 23 June, 2022, respectively.
Currently, it is trading 46.01 percent below its 52-week high and 5.18 percent above its 52-week low.
Market capitalisation stands at Rs 29,235.93 crore.
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