Street is punishing Gujarat Gas for taking price cut

Shares of Gujarat Gas Limited (GGL) continue their weak run on Wednesday after losing for the last 4 days in a row. The stock fell as much as 6.33 percent to Rs 491.95 on the BSE.

At 2.19 pm, the scrip is quoting at Rs 493.65, down 6.01 percent or 31.55 points on the BSE.

Even on Tuesday, the stock was among the biggest losers. In the past one year, the shares of GGL have underperformed the Sensex by over 22 percent.

UBS has cut target price on the stock from Rs 550 to Rs 400 per share. The brokerage house is of the view that manufacturers are opting for propane versus the gas supplied by the company and this could impact the company's volume and margin, going ahead.

However, ICICI Securities remains confident about the stock. According to the firm, Morbi propane worries are overblown.  It is of the view that there are limited downside risks to the stock.

Further, ICICI Securities does not see prices for GGL's industrial segment exceeding Rs62/scm (standard cubic meter), which will remain extremely competitive for the gas company. In fact, it remains sanguine on GGL's prospects and expects the company's share to be at 25 percent of the pie.

Domestic brokerage ICICI Direct has upgraded the rating on Gujarat Gas stock from 'hold' to 'buy', setting a target price of Rs 625, which is more than 16 percent from the current price levels.

"GGL's share price has seen ~25% correction from January 2022 due to higher gas prices. With easing LNG prices and pricing power of the company, margins are likely to normalise over the near to medium term," the report noted.

"In the near term, price hikes/global LNG costs trend will be key monitorable," it added.

The recent downtrend in Gujarat Gas stock has come days after the gas distribution company slashed prices in its industrial segment by Rs 5/scm. Gas is often believed to move in sync with the crude oil price, however, it may not be the case all the time.

The price cut by the company in its industrial segment is especially relevant since the price of crude is hovering around $ 120 per barrel level. This means gasoline prices will see an upward trend as well, which could mean trouble for the Gujarat State Petroleum Corporation-owned company. Analysts indicate that this is what is most likely weighing down investor enthusiasm.

Further, gas prices have been off the charts in many parts of the world, especially in the US. In fact, in the last week of May, gas prices in the US had reached the highest level in the country’s history. This may be another reason why Dalal Street investors are worried as global prices will likely have an impact on the gas prices in India and hence, the reduction in prices may not have come at the most opportune time.

For the March quarter, the country’s leading city gas distribution company posted a 28 percent growth in its net profit at Rs 444.39 crore on a year-on-year basis as compared to Rs 348.29 crore in Q4FY21. Its revenue also registered a growth of 36 percent YoY at Rs 4,791.04 crore in the March-ended quarter.