This energy stock recovers 4.81% from 52-week-low, brokerage remains bullish
2 min read 02 Jul 2022, 04:26 PM ISTWith a market valuation of ₹29,074 crore, Gujarat Gas Ltd. is a large-cap company that operates in the gas and petroleum industry.
PremiumWith a market valuation of ₹29,074 crore, Gujarat Gas Ltd. is a large-cap company that operates in the gas and petroleum industry. Gujarat Gas Limited (GGL) is India's largest City Gas Distribution (CGD) Company owing to the sales volume as the company has active gas distributions permissions distributed among 43 districts in 6 states and 1 union territory, including Gujarat, Maharashtra, Rajasthan, Haryana, Punjab, and Madhya Pradesh, as well as the union territory of Dadra & Nagar Haveli. In the CGD industry, Gujarat Gas holds more than 17 lakh individuals, over 13,600 commercial customers, 711 CNG outlets, more than 4,300 industrial plants, and more than 32,890 kilometres of a natural gas pipeline system and also the company has the capacity of generating more gas than 10.5 mmscmd gas volume.
The 52-week high for Gujarat Gas Ltd. (GGL) shares was Rs. 786.00 on August 4, 2021, and the 52-week low was Rs. 403.55 on June 23, 2022, meaning that at its current price of Rs. 423, the stock has recovered significantly by 4.81 per cent from its 52-week low and is currently trading at a discount of 46% to its 52-week-high. ICICI Securities, a brokerage company that is bullish on the stock, has put a buy call with a target price of ₹566, which represents a potential gain of 33% from the current price.
ICICI Securities has said in its report that “Gujarat Gas (GGL) presents an excellent opportunity to enter the stock at current levels, with the stock seeing multiple concerns buffeting the stock price (down 14% last 3 months) amidst multiple concerns on volumes and margins. Indeed, the next 12 months will be concerning for CGDs, with high gas costs, stagnant petrol and diesel prices (due to no price hikes) and for GGL, the threat of large scale propane migration at Morbi. We believe, however, current valuations of 19.7x FY24E EPS, 11.5x EV/EBITDA more than factor in the downsides from nearterm stress and completely ignore longer term business strengths of GGL. Also, our assessment of volume hit via propane and margins is less alarming than consensus estimates hence, we continue to remain positive on GGL from an 18- 24 months perspective."
The brokerage has also clarified that “GGL is expanding aggressively into new areas that it has been gradually developing over the last 3-4 years, with FY20-21 seeing some slowdown due to covid-related constraints. FY22 has seen the momentum return to investment with >Rs13bn capex seen in the year and guidance remains for Rs11-12bn of capex to sustain over medium term to support volume growth guidance of 10-11% over a sustained period of time."
“Post the recent 14% fall in the stock price (last 3 months), GGL presents a compelling opportunity to enter the stock. Taking cognizance of the uncertain cost and margin environment, we assume more conservative estimates for volume and margins for FY23/24E, implying a reduction of 20% (FY23E) and 10% (FY24E) for EPS and a lower TP of Rs566/sh (earlier: Rs650/sh). Current multiples, even on these earnings, of 19.7x FY24E PER and 11.5x EV/EBITDA, are compelling. BUY," said ICICI Securities.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
