PSU stock: Gujarat Gas Ltd reported lower-than-anticipated June quarter margins, partly offset by modestly higher-than-anticipated volumes. Net income missed analyst estimates marginally while a lower Ebitda was offset by an increase in other income. The gas utility cut its volume growth guidance for FY25 to 6-7 per cent against an earlier guidance of 10 per cent. The Gujarat Gas' management expects industrial PNG volumes in the Morbi cluster to decline 30-40 per cent QoQ in the September quarter. Supplies to the Morbi cluster currently stands at 2.5-3mmscmd. A few analysts are negative on the Gujarat Gas stock's prospects, as they believe valuations have turned expensive on the counter.
Nomura India suggested a 'Reduce' rating on the Gujarat Gas stock with a target price of Rs 470, underpinned by concerns surrounding GGL’s sustained volume recovery in its key Morbi region given the sensitivity to demand during lower propane vs natural gas prices. The stock closed at Rs 621.30 on Thursday, down 2.37 per cent.
"GGL remains amongst the most expensive gas utility companies globally, currently trading at 22.6 times FY26F P/E, despite the challenges it faces surrounding volume recovery and growth. GGL has a sensitivity of: (1) 5 per cent to Ebitda if volume is 1mmscmd lower than factored and (2) 9 per cent to Ebitda if margins are INR0.5/scm lower than factored," Nomura India said.
Analysts expect Morbi volumes to be impacted in the September quarter, due to ceramic plant shut-downs due to the festive season of ‘Janmashtami’, lower exports due to ongoing issues surrounding shipping driven by geopolitical issues in the Middle East, and disruptions due to the monsoons.
Emkay Global said the FY25 volume growth guidance is muted at 5-7 per cent against 10 per cent that is typically targeted. "GGL highlighted focus on CNG growth. We maintain our negative stance on GGL, on propane competition, volatile margins, conservative guidance, and expensive valuations (24 times Sep-26E EPS against peers at 10-15 times); retain SELL; prod up Sep-25E TP to Rs 500 per share," it said.
HDFC Institutional Equities has an 'ADD' recommendation on Gujarat Gas with a price target of Rs 655 per share as it sees pricing competition from alternate fuel in the industrial segment moderating margin expansion outlook. This brokerage said a robust volume growth being priced-in at current valuation.
Nuvama, meanwhile, has retained its 'Buy' on Gujarat Gas. "GGL shall sustain strong volume growth led by new GAs, CNG stations and revival of I-PNG business. It maintains steady OCFs, sufficient to meet its capex needs. We are raising FY25E/26E EPS by 5 per cent/2 per cent while target price's unchanged at Rs 745; retain ‘BUY’," it said.