Strong earnings performance of Gujarat Gas, coupled with the favourable order book, has led to a sharp rise in the stock price — the stock has risen more than 146 percent in the last one year and 23.62 percent so far this year.
In the December quarter, the company reported a volumes growth of 42.1 percent YoY at 9.32 mmscmd, largely led by a boom in industrial volumes that grew 58.7 percent YoY to 7.11 mmscmd. CNG volumes grew 6.1 percent YoY to 1.51 mmscmd.
The company has benefited after the National Green Tribunal's order to shut all coal-operated units of ceramic companies in Morbi, Gujarat.
"Gujarat Gas benefitted from the NGT order. We expect it to maintain strong sales volume contribution... Robust increase in volumes driven by regulatory tailwinds, further penetration in existing geographical areas (GAs) and aggressive expansion in newly acquired GAs will lead to sustainable long-term growth," ICICI Securities said in a report.
The brokerage has upgraded its rating from 'hold' to 'buy' and has a target price of Rs 355.
Global brokerage Jefferies said that while the ban on coal gasifiers in Morbi is already reflected in the numbers, incremental tile demand from the US could push Morbi volumes to 7.5 mmscmd. The recent NGT directive against polluted areas in Gujarat can help in growth in other areas too.
CLSA maintained a ‘buy’ rating on the stock and raised the target price to Rs 360 from Rs 315 earlier.
CLSA expects depressed LNG prices due to an oversupplied LNG market along with falling domestic gas prices to further lower the company’s raw material costs and drive up its volume and margin.
The global brokerage also raised its EPS estimates by 4 percent-7 percent. Gujarat Gas’ recurring EPS is set to rise at over a 20 percent CAGR over FY20-22CL, even after more than doubling YoY in FY20, it said.
In the Union Budget 2020-2021, Finance Minister Nirmala Sitharaman proposed to expand National Gas Grid to 27,000 km from the present 16,200 km. Brokerages expect Gujarat Gas to be the beneficiary of this proposal.
At 12:40 pm, shares of Gujarat Gas were trading 2.60 percent lower at Rs 291.90 on the BSE.
First Published: Feb 17, 2020 1:26 PM IST
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