Gujarat Gas gains as UBS sees 11% upside on improved outlook

Analysts at brokerage UBS expect up to 11% upside in Gujarat Gas shares in the next 12 months following improved outlook on volumes and margin due to recent correction in LPG prices.

The brokerage also upgraded the stock to ‘neutral’ from its ‘sell’ recommendation earlier and increased the target price from ₹380 per share to ₹610 per share. The new target price suggests a potential upside of 11% from Wednesday’s close.

The brokerage in a report stated that the rating upgrade follows and improved outlook on volumes and margin as spot LNG prices have softened.

UBS raised the FY25-26E volume estimate by 9% (industrial volumes by 16%) and gross margin by 4-8%, which leads to a 19-24% higher earnings before interest tax depreciation and amortisation (EBITDA).

The brokerage mentioned that a further decline in spot LNG prices to 2019-20 levels (USD 5.0/mmbtu) poses upside risks to earnings.

The brokerage stated that the improved near-term outlook has already been reflected and risk-reward looks balanced, after a close to 20% rally in 2024 (year-to-date),

Gujarat Gas shares gained as much as 1.85% in morning trade on Thursday, February 29, to hit a high of ₹558.85 per share on BSE. The stock was trading 0.28% higher at ₹550.2 at 9.47 AM.

Gujarat Gas Ltd is the largest city gas distributor in India. Gujarat Gas is currently operating in 27 geographical areas across six states and a union territory with a good mix of matured and emerging CGD areas.

The company reported the highest ever CNG volume of 2.78 MMSCMD in the December quarter, which is 14% higher than that in the third quarter of the previous financial year.

The company reported a profit after tax of ₹220 crore for the December quarter against ₹298 crore in the September quarter of this year.