Motilal Oswal's research report on Gujarat Gas
Gujarat Gas has announced a scheme of amalgamation and arrangement, under which Gujarat State Petroleum Corp. (GSPC), Gujarat State Petronet (GUJS) and GSPC Energy (GEL) will merge with Gujarat Gas. This will be followed by the merged entity de-merging the transmission business into a new entity, GSPL Transmission Limited (GTL). Gujrat Gas management expects to complete the transactions by Aug’25. Based on the proposed share swap, we see ~5% upside for GUJS. For Gujarat Gas shareholders, we see the following key implications after the merger: We estimate a combined value of the business at INR633/share, implying 4.7% upside on CMP. EPS is estimated to be INR28.7, up 39% vs. our FY25 EPS estimate. The company may not pay taxes for the next four years due to INR72b of accumulated tax losses at GSPC (based on FY24 PBT).
Outlook
We maintain our BUY rating on Gujarat Gas with a TP of INR715. While 2QFY25 volume momentum is expected to be weak QoQ amid high spot LNG prices and a one-month shutdown in the Morbi cluster, we believe volumes should pick up in 2HFY25-FY26 amid improved competitiveness vs. propane. We keep our estimates unchanged as the scheme is expected to be completed in Aug’25.
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