Hold Gujarat Gas; target of Rs 530: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Gujarat Gas

We maintain our FY23/24E earnings. GGAS reported better than expected Q2 results with EBIDTA/PAT of Rs6.4bn (+6%Q/Q; PLe Rs4.9bn) and Rs4.0bn (+6.1%Q/Q; PLe Rs3.0bn) due to sharp improvement in margins. Q2 industrial volumes were down to 4.5mmscmd (-32%QoQ), as demand shifted to cheaper Propane which amounted to 2.5mmscmd. Drop in spot LNG prices to USD24/mmbtu is positive, however, emergence of propane as a competing fuel will limit GGAS’s margins/volume growth. Company has cut prices by Rs5/scm recently to pass on drop in gas prices, however, GGAS is likely to face growth challenges.

Outlook

We like GGAS as a structural play on industrial gas demand and accordingly maintain our ‘HOLD’ rating with DCF based PT of Rs530 (Unchanged).

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Gujarat Gas - 10 -11-2022 - prabhu