Buy Gujarat Gas; target of Rs 555: Sharekhan

Sharekhan's research report on Gujarat Gas

Q1FY24 performance was weak as PAT missed the mark by 33% at Rs. 215 crore (down 42% q-o-q) due to 24%/3% miss in EBITDA margin/gas sales volume. Industrial PNG (I-PNG) price cut to drive Morbi volumes, in fact dragged down EBITDA margins by 34% q-o-q to Rs. 4.6/scm (at lower end of guidance). I-PNG volume grew by 10% q-o-q to 5.9 mmscmd as Morbi volume improved to 4 mmscmd; CNG volume posed modest 3% q-o-q growth while D-PNG/C-PNG volume declined by 28%/7% q-o-q. The recent surge in propane price to $470/tonne (expected to further increase in winters) and increase in propane import duty to 19.3% would improve economics of I-PNG versus propane and drive volume shift to natural gas in Morbi (potential of 6.5 mmscmd for GGAS). We thus expect robust gas sales volume CAGR of 26% over FY23-25E.

Outlook

Valuation of 16x FY25E EPS is attractive considering improved volume growth outlook and high RoE of 23%. Hence, we maintain a Buy on GGAS with a revised PT of Rs. 555.