This city gas distributor is not running out of steam after the Covid hit

Mumbai: In an otherwise gloomy pack of public sector company stocks, a city gas distribution company continues to shine in terms of price performance. And analysts largely expect the rally to continue.

The company is Gujarat Gas, the country’s largest city gas distributor. The stock has risen 22 per cent for the year-to-date period and the current leg of the rally on the counter is backed by the gradual opening of the coronavirus-induced lockdown. The stock currently trades at Rs 289, only 6 per cent away from its record high hit in February.

The stock is the best performer in the PSU pack so far this year, having delivered 57 per cent return for last one year and 83 per cent for last three. The BSE PSU index is down 33 per cent for year to date and the benchmark Sensex 19 per cent.

“Gas distribution companies such as Gujarat Gas are one of the key beneficiaries of the easing of lockdown. They stand to benefit directly as industrial activity picks up,” said Ajay Bodke, CEO-PMS at Prabhudas Lilladher.

While Gujarat State Petronet held a 54.17 per cent stake in the company, it was also widely held by as many as 175 foreign institutional investors (FIIs), and was a part of 24 mutual fund schemes at the end of March quarter, data from Marketsmojo.com showed. In aggregate, FIIs held 9.83 per cent, while mutual funds 6.58 per cent.

Currently, the stock has 11 ‘strong buy’, 4 ‘buy’, 7 ‘hold’, 3 ‘sell’ and 1 ‘strong sell’ ratings, data from Reuters Eikon showed. It had no ‘sell’ ratings until December.

On June 12, Firstcall Research said it was overweight on Gujarat Gas from a medium-term perspective.

“The company continued its uninterrupted supply of natural gas to its customers based on their requirement during the lockdown period. All the office of the company has now resumed normal operations strictly following the guidelines issued by the government,” Firstcall analysts said in a note.

“As restrictions are being gradually lifted in many of Company's operating areas, the gas sales volume has started showing up an increasing trend both in Industrial and CNG segments. The company is currently flowing gas volumes close to 5.5mmscmd,” they added.

Some felt the stock could have turned expensive given the sharp recovery. ICICIdirect cut the rating on the stock to hold from buy, and maintained a target price of Rs 290, but said it anticipated sustainable growth for the company.

“In the long term, an increase in volumes driven by regulatory tailwinds, further penetration in existing geographical areas and aggressive expansion in newly acquired gas will lead to sustainable growth,” ICICIdirect analysts said,

“After the recent runup in stock price, we revise our rating on the stock from ‘buy’ to ‘hold’ and maintain a price target of Rs 290,” they added.

Gujarat Gas' consolidated net profit for the quarter ended March surged 114.80 per cent to Rs 250.46 crore on the back of a 39.8 per cent jump in sales to Rs 2,666.63 crore from a year ago.

In a June 6 exchange filing, the company said the lockdown had an impact on immediate natural gas demand, mainly from industrial and CNG customers.

As restrictions are being lifted gradually in many of the company's operating areas, demand has started showing up an increasing trend both in industrial and CNG segments, it said.

The company also invoked the force majeure provision of the gas purchase agreement with its suppliers to secure itself from any liability, and has a comfortable liquidity position. It continues to assess its cash flow and liquidity position, in both normal and stressed situations.