Accumulate Gujarat Gas; target of Rs 346: Dolat Capital

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Dolat Capital's research report on Gujarat Gas

Gujarat Gas results were below our estimates on revenue front and in line with estimates on profitability front. Volumes were at 377 mmscm which was a decrease of 54.7%YoY and of 58.3% QoQ, with industrial segment de-growth at 59.6% YoY and 62.9% QoQ. Major de-growth in industrial segment has come as most of the units were shut due to lockdown. However, their sales volume has shown robust recovery post lockdown. Realisations were flat sequentially at Rs 29.4/scm and EBITDA Spreads increased to Rs 4.9/scm sequentially. Gas cost declined to Rs 19.4/scm. With recent strategy of management to focus on volumes, we believe that operating spreads should sustain at Rs 4.5/SCM- Rs. 5/SCM Gujarat Gas will benefit from the spurt in demand of natural gas from Morbi and other industrial regions as well as competitive LNG prices over alternate fuels. Maintain Accumulate with a target price of Rs 346 (DCF Method).

Outlook

We however expect major volumes to be start clocking in from H2FY21. NGT’s order to switch to gas in other industrial areas than Morbi, increasing CNG consumption and additional volumes coming from the recently completed 9th and 10th CGD rounds where Gujarat gas has won 7GA’s, such aggressive expansion plans reiterates our confidence on the stock, we maintain Accumulate with a DCF based target price of Rs 346.

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