Sharekhan has given Buy recommendation for Gujarat Gas with a target price of Rs. 890 in its research report issued on Aug 05, 2021
Sharekhan’s research report on Gujarat Gas
Q1FY22 PAT at Rs. 476 crore, up 36% q-o-q and beat of 30% versus our estimate led by stronger-than-expected EBITDA margin at Rs. 7.9/scm (up 56% q-o-q) offsetting the miss in volume at 10 mmscmd (down 17.5% q-o-q). Robust margin performance was driven by full benefit of the Rs. 9/scm price hikes taken in Jan-Feb, and lower gas cost on account of decline in spot LNG price and higher use of domestic gas. Industrial PNG volume declined by 19% q-o-q to 7.8 mmscmd as demand from Morbi customers fell by 23% q-o-q to 5.6 mmscmd. Management maintained its 10% p.a. volume growth guidance for next 3-4 years and FY22 margin guidance of Rs. 5.5-6/scm. Volumes recovered to 12 mmscmd but EBITDA margin likely to fall to Rs. 4-4.5/scm on recent surge in spot LNG price.
We maintain a Buy on Gujarat Gas with a revised PT of Rs. 890. GGAS’ industry leading volume/earnings growth outlook (expect 24% PAT CAGR over FY21-FY24E), high RoE of 30% and robust FCF justified premium valuation.