Gujarat Gas surges as the Street sees reduction in industrial gas prices by 8% as positive

Gujarat Gas was in focus on Thursday as the city gas distribution firm slashed industrial gas prices by approximately ₹3.5 per standard cubic meter (scm). The reduction is significant and translates into an 8% cut in prices, fuelling interest among investors and industry observers.

The decision came in the wake of an anticipated price cut aimed at bolstering the company's industrial gas volumes. The third quarter of the fiscal year 2023-2024 (Q3FY24) witnessed a decline in volumes, particularly in the industrial segment, prompting speculation about potential price adjustments.

Morbi, recognised as a vital industrial cluster for the ceramic segment, reported subdued gas volumes ranging between 4 and 4.2 million metric standard cubic meters per day (mmscmd) in January and February.

ICICI Securities had previously hinted at the likelihood of propane prices, a competitor for Gujarat Gas, hovering in the range of ₹41-43 per scm in subsequent periods. Recognising the competitive landscape, the company took the proactive step of reducing industrial gas prices to safeguard its market share and attract higher volumes.

Broking firm UBS has not only elevated the Gujarat Gas stock rating from 'sell' to 'neutral' but has also raised the target price from ₹380 to ₹610 per share. According to the brokerage's report, this rating adjustment is attributed to a more optimistic perspective on volumes and margins, driven by the softening of spot LNG prices.

While the market responded positively to the news, with Gujarat Gas stock rising by 3% on Thursday, closing the trading session at ₹565.70, uncertainties linger about the immediate impact of the price cut on volumes.

The success of this strategic move hinges on the resolution of challenges faced by the Morbi ceramic cluster, including sluggish demand in both the domestic and export markets. Issues such as Red Sea disruptions and elevated freight costs have contributed to a subdued market environment, necessitating a cautious wait-and-watch approach to gauge the effectiveness of the price reduction.

The Ahmedabad headquartered company, which boasts a market capitalisation of ₹38,918.14 crore, has delivered returns of approximately 23% over the last six months.