Buy Gujarat Gas: target of Rs 630: Sharekhan

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Sharekhan's research report on Gujarat Gas

Morbi gas volumes could increase further as Morbi Ceramic Association expects growth of 25-30% in FY22 with addition of 60 new units. Crackdown of polluting industrial areas and volume ramp-up from new GAs provides strong volume impetus. Potential inclusion of natural gas under GST could be game changer for GGAS as the same is expected significantly boost industrial PNG demand (80% of GGAS’s overall volume) as customers would be able to avail benefit of input tax credits. We expect GGAS’s valuation gap with IGL to narrow down as GGAS has much better volume growth outlook, superior RoE and strong FCF generation. GGAS trades at 11% discount to IGL.

Outlook

GGAS is expected to post highest volume CAGR of 22.4% over FY21E-FY23E among CGD players, which warrants an upgrade of valuation multiple. We thus increase our PE multiple to 24x; raise PT to Rs. 630 and retain Buy on GGAS.

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