Gujarat Gas share price rise 3.5%: 3 key reasons why analysts expect up to 33% upside for the stock

Gujarat Gas share prices rose 3.5% in the intraday trades on Monday. The stock had corrected more than 6% post Q3 results on friday , however rebounded well.  

There was some disappointment in Q3 Earnings performance largely related to weakness in margins.  The same is being led by some weakness volumes and margins for Gujarat Gas's supplies to Morbi industrial cluster. 

Total volume for Gujarat Gas during the quarter at 9.16 mmscmd (million standard cubic meter) declined 2% sequentially though were up 26% year-on-year. While total industrial volume at 5.53 mmscmd ( down 6% sequentially, up 37%YoY), largely led by Morbi was 3.65 mmscmd ( down 6% sequentially, up 74% YoY)

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After Q3 miss analysts at Elara Securities, Sharekhan and Antique Stock Broking target price for the stock at 745, ₹615 and RS 645 indicate up to 33% up side for the stock trading at close to ₹560 levels.

Key reasons why brokerages maintain positive outlook. 

Strong CNG volume growth.  

CNG (compressed natural gas) volume remained strong and reached a record high of 2.78 mmscmd (+6% QoQ, +14% YoY). Analysts at Sharekhan said that there was 4% beat on CNG volumes, while CNG will be the key driver of volume growth for the company, said analysts at Antique Stock Broking. 

The company has recently launched FODOCO (Full Dealer Owned Dealer Operated) model for putting up additional CNG stations and has received 700 online applications. Of this, the company will put up 200 CNG stations over the next couple of years. Overall, it will drive 15%-20% volume growth in the segment as per Antique analysts. 

Ahmedabad Rural order has been implemented from January and  volumes should start flowing in soon. The area has a potential of 0.5 mmscmd total (Industrial and CNG combined) in the medium term, said Antique analysts.

FY25E-26 EPS estimates raised

Elara Securities India Pvt Ltd have raise FY25, FY26 EPS estimates 13% and 32% respectively on higher gas sales volume to 11.5mmscmd (from 10.6mmscmd)/13.2mmscmd (from 11.8msmcmd), respectively, as  they expect higher CNG volume growth and rebound in industrial volume due to massive LNG capacity addition globally, in the next four years, which may lead to muted gas prices.

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Gujarat Gas is dependent on imported Liquified gas cargoes to meet piped natural gas (industrial) demand an hence decline in LNG prices will be positive.

Decline in imported LNG prices

Starting second Half FY25, globally, analysts at Elara expect 40 million tonnes per annum annum LNG export capacity to be added in the next four years. This should mean softer gas prices. 

Even analysts at Antique stock broking said that given the steep decline in spot LNG prices and a lot more capacities are expected to come onstream over the next couple of years, we expect spot LNG prices to remain muted which will potentially divert the propane volumes back in favor of natural gas. 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions