This Gas Stock Declares A Dividend Of Rs 6.65/Share, Has A Buy Rating From 2 Leading Brokerages

Motilal Oswal and Anand Rathi recommend buying shares of Gujarat Gas Ltd, a mid cap company. Both brokerages see a potential upside from the stock of this gas company. Gujarat Gas is India's largest gas distribution company, owned by Gujarat State Petroleum Corporation, established in 1980, and headquartered in Ahmedabad.

4QFY23 performance has been better than expected on surprise growth in Morbi volumes; highest CNG, D-PNG volumes. Total volumes stood at 8.9mmscmd (est. 8.5mmscmd) in 4QFY23. CNG volumes stood at 2.53mmscmd (+13 per cent YoY). PNG I/C volumes were at 5.5mmscmd (-51 per cent YoY), with PNG domestic volume is at 0.83mmscm.

Morbi volumes improved substantially to 3.6mmscmd in 4QFY23 (v/s 2mmscmd in 3QFY23) due to the narrowing price gap between natural gas and alternate fuels as a result of price cuts taken by GUJGA in 4QFY23.

Currently, propane prices are at par with natural gas, while LPG is being traded at a discount of Rs 1.5-2/scm.The company's long-term gas contract of approximately 1mmscmd with Vedanta expired during the quarter which aided margins with an increased share of cheap spot LNG in the volume mix. The spot LNG price continues to fall to USD11/mmBtu for May 2023 delivery from USD15.6/mmBtu in 4QFY23, which can result in further volumes recovery.

1. Buy Gujarat Gas Ltd stock, with a target price of Rs 610 per share: Motilal Oswal
As per the brokerage firm, in 4QFY23, the company added more than 50,000 new domestic customers and 60 CNG stations and commissioned 400+ commercial & industrial customers.

The transfer of Amritsar and Bhatinda GAs to GUJGA from GSPL was completed in November 2021 (for Rs 1.54 billion). Bhatinda offers huge potential for industrial gas consumption. We expect FCF generation of around Rs 21b over FY24-25 despite capex plans of approximately Rs 20 billion. We reiterate our BUY rating on the stock with a TP of Rs 610 (at 32x FY25E EPS).

2. Buy Gujarat Gas Ltd stock, with a target price of Rs 560 per share: Anandrathi
The Rs7/scm EBITDA spread, down 10.3 per cent y/y, 19.1 per cent q/q, was slightly higher than the Rs6.8 we expected. The performance beat consensus expectations. EBITDA and PAT were Rs5.6bn and 3.7bn, down 19.7 per cent/19.1 per cent y/y on lower volumes and spreads, and 3.8 per cent/0.5 per cent q/q. Volumes at 8.86mmscmd were down 10.4 per cent y/y, but q/q up 21.5 per cent.

We expect EBITDA spreads of Rs6.8/scm in FY24 and Rs6.9 in FY25. We expect Gujarat Gas to benefit from lower gas prices after the approval of the Kirit Parikh Report recommendations, which resulted in lower CNG and D-PNG prices, which could drive volumes. The stock trades at 20.2x/17.4x FY24e/ FY25e P/E. We upgrade our rating to a Buy, with a target price of Rs 560 per share.

Dividend deatils of Gujarat Gas Ltd
During a recent board meeting held on Wednesday, May 10, by the company, the directors recommended and approved a dividend of Rs 6.65 per equity share of face value Rs 2 each to the shareholders for the financial year 2022-23. The company did not share the record date or book closure details yet.

Share price movemen of Gujarta Gas Ltd
The current market price of Gujarat Gas Ltd stock is Rs 488.35 per share, up by 5.48 per cent. In the last one year, the share price has fallen sharply by 13.86 per cent but in the last three years, it has surged by 97.87 per cent.

Disclaimer
The stocks have been picked from the brokerage report of Motilal Oswal, and Anand Rathi. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.