Prabhudas Lilladher has given Buy recommendation for Gujarat Gas with a target price of Rs. 845 in its research report issued on Sep 27, 2021

Prabhudas Lilladher’s research report on Gujarat Gas

GGAS stock price fell 20%, as soaring spot LNG price of over $20/MMBtu (3x from Q1FY22 levels) and lower container availability hit Morbi volumes which accounts for ~60% of company’s volumes. However, we believe recent correction offers an attractive entry point given 1) likely start of new gas (Nord Stream 2) pipeline (40MTPA capacity) supplies from Russia by early CY22 to help ease spot LNG prices 2) GGAS has entered into oil linked contracts for cutting reliance on spot volumes to 24% in FY22 (~37% in FY21) 3) recent price hikes in CNG and PNG of 4%/15% to shield margins and 4) aggressive expansion of CNG station network to increase CNG share to 19.5% in FY24E (15.7% in FY20). Underpinned by resilient downstream demand across ceramics, chemicals, pharma, GGAS remains a formidable business model.

Outlook

We expect CAGR of 22.4% in earnings over FY21-24E. Reiterate BUY with revised DCF based PT of Rs845 (Rs896 earlier) as we reduce volume estimates to factor in lower than expected H1FY22E and increase WACC to 10.4% from 10% earlier to factor higher market return.

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