With a market capitalization of 29,074 crores, Gujarat Gas Ltd. works as a large-cap corporation in the gas and petroleum business. India’s most extensive City Gas Distribution (CGD) Company is Gujarat Gas Limited, which has 43 active gas distribution licences throughout six states and one union territory, including Gujarat, Maharashtra, and Rajasthan, Haryana and Punjab, as well as the union territory of Dadra & Nagar Haveli. Over 17 million people are served by Gujarat Gas, which has over 13,600 commercial clients, 711 compressed natural gas (CNG) stations, more than 4,300 industrial facilities, and more than 32,890 kilometres of natural gas pipelines. Gujarat Gas can also produce 10.5 mmscmd of gas.
During the 52-week period ending August 4, 2021, Gujarat Gas Ltd. (GGL) shares closed at Rs. 786.00, while the 52-week low was Rs. 403.55 on June 23, 2022. At Rs. 423, the stock has recovered significantly by 4.81 per cent from its 52-week low and is currently trading at a discount of 46 per cent to its 52-week-high. An upbeat brokerage firm, ICICI Securities, has issued a buy call on the stock with a price target of 566, representing a potential gain of 33% over its current price.
At current prices, Gujarat Gas (GGL) gives an attractive chance to enter the company, which has been buffeted by several issues (down 14% in the previous three months) and multiple concerns on volumes and margins. With high gas costs and stagnating petrol and diesel prices (due to no price rises), the next 12 months will be a concern for CGDs, and GGL, the prospect of large-scale propane migration at Morbi. Current prices of 19.7 times FY24E EPS and 11.5 times enterprise value/earnings before interest and taxes (EV/EBITDA) do not, in our opinion, consider GGL’s long-term competitive advantages. In addition, we believe that the volume hit from propane and margins will be less severe than mainstream predictions. Therefore we remain bullish on GGL over the next 18 to 24 months.”
“GGL is expanding rapidly into new areas that it has been progressively developing over the last 3-4 years, with FY20-21 witnessing some slowing due to covid-related restraints,” the brokerage clarified. Over the medium term, guidance is for Rs11-12 billion in CAPEX to meet volume growth guidance of 10-11 per cent, which was seen in FY22 with >Rs13 billion in CAPEX in the year.
“GGL gives a compelling opportunity to enter the stock following the 14 per cent dip in the stock price (past three months). We assume the more conservative volume and margin assumptions for FY23/24E in light of the uncertain cost and margin environment, resulting in EPS reductions of 20% (FY23E) and 10% (FY24E) and a lower TP of Rs566/sh (previously: Rs650/sh). Current multiples of 19.7x FY24E PER and 11.5x EV/EBITDA, even on these earnings, seem enticing. Investors should “BUY,” according to ICICI Securities.
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