Prabhudas Lilladher has given Buy recommendation for Gujarat Gas with a target price of Rs. 764 in its research report issued on Jan 10, 2022
Prabhudas Lilladher’s research report on Gujarat Gas
We interacted with one of the largest Morbi based unlisted ceramic majors to better understand demand trends, opportunities and its impact on GGAS. Morbi accounted for over 90% of India’s ceramic production and ~60% of GGAS gas demand. While demand remains robust post pandemic, sharp increase in gas prices and continued high freight rates have led Morbi’s ceramic industry to operate at ~85% utilization from over 95% a year back. Our key observations are 1) Another round of gas price hike (~10-15%) is expected shortly and adverse economics (propane is ~8% cheaper to gas currently) have led to higher usage of propane of 1mmscmd, 2) We expect GGAS’s margins to bottom in Q3 at Rs2.5/scm (H1: Rs 5.8/scm) and improve in Q4, due to pricing intervention and 3) Any resolution in Ukraine crisis and forward movement in certification of the Nord Stream 2 pipeline will ease spot LNG prices and support margins. GGAS is a formidable player in the industrial gas distribution and will ride on healthy downstream demand in ceramics, chemicals, agrochemicals etc. High pricing power will ensure margin and profit sustenance.
Our estimates factor in 15.8% CAGR volume growth over FY23/24E and margins of Rs5.6- 5.7/scm. Reiterate BUY with a DCF based PT of Rs764.
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At 15:52 hrs Gujarat Gas was quoting at Rs 690.80, up Rs 6.40, or 0.94 percent.
It has touched an intraday high of Rs 706.00 and an intraday low of Rs 686.15.
It was trading with volumes of 141,794 shares, compared to its thirty day average of 51,546 shares, an increase of 175.08 percent.
In the previous trading session, the share closed up 2.20 percent or Rs 14.70 at Rs 684.40.
The share touched its 52-week high Rs 786.65 and 52-week low Rs 342.30 on 04 August, 2021 and 25 January, 2021, respectively.
Currently, it is trading 12.18 percent below its 52-week high and 101.81 percent above its 52-week low.
Market capitalisation stands at Rs 47,553.99 crore.