UBS sees over 45% upside in these gas stocks on ‘attractive’ valuations and margin but…

Shares of gas companies Indraprastha Gas, Mahanagar Gas and Gujarat Gas were trading in the red on Wednesday, as global brokerage, UBS’ positive commentary failed to excite the Street.

Shares of Indraprastha Gas were down a percent in intraday trade even as UBS gave the stock a ‘buy’ rating with a target price of Rs 630 per share, meaning it expects the gas stock to jump over 48 percent from Tuesday’s closing price.

Mahanagar Gas shares too were trading lower, having slipped more than a percent during the day. UBS expects the stock to scale 48 percent from Tuesday’s closing price of Rs 868.30 to Rs 1,280.

According to the brokerage both IGL and MGL have been trading at attractive valuations compared to their past 5-year average.

It, however, has a ‘sell’ call on Gujarat Gas shares, which traded in the green zone rising more than a percent. UBS, expect the stock of the gas distributor to fall to Rs 400 per share. This implies a 20 percent downside from the last closing price.

UBS noted that the gas companies have delivered gas costs for the second half of the July to September quarter 30 percent lower than the first half of the three-month period.

According to the brokerage, elevated spot LNG prices and depreciating currency have increased gas costs for the priority sector and the revision in gas allocation policy has improved the outlook for city gas distributors.

UBS expects gross margin for the month of September as 25-40 percent higher than the April to June quarter levels.

The brokerage’s remarks and the negative trend in the gas stocks come at a time when crude jumped has more than 2 percent after Russian President Vladimir Putin announced a partial military mobilisation, escalating the war in Ukraine and raising concerns of tighter oil and gas supply.