Gujarat Gas Ltd. share price target

Since our upgrade in Dec'19, the stock is up 116% it has outperformed the Nifty by ~95% despite which the stock trades at 21x FY23E EPS currently. Interestingly, we have upgraded our EPS every quarter since then (from INR12.3 to INR19.9 for FY22E) on the back of better-than-expected volume growth. CGDs have been a true consumption story and, as highlighted in Exhibit 1, the market has always valued volume growth for these names. GUJGA has clocked volume growth of ~8% QoQ each time since 1QFY20 despite the COVID-led disruption witnessed in 1HFY21. Over the past five years, the company has posted a volume...

Highly modular nature of capex with initial focus on CNG to ensure high ROCE. We hosted four CGD players, a retired policy expert and a Morbi based ceramic major to understand growth drivers for City Gas Distribution (CGD) sector. All CGD participants were extremely positive on growth prospects and expect accelerated development ahead. We sensed that the recent regulatory clarifications added to their comfort. Steep discounts to petrol and diesel is driving CNG volumes and overall margins for CGDs. The CGD players are fairly confident in meeting their aggressive Minimum Work Programme...

The quarter witnessed robust growth of 22.9% YoY in volumes to 11.4 mmscmd. Industrial volumes were at 9.2 mmscmd vs. 7.1 mmscmd YoY and 7.9 mmscmd QoQ due to sharp growth in unlock phases. CNG volumes at 1.5 mmscmd also recovered fully and grew 2% YoY whereas domestic/commercial PNG volumes at 0.7 mmscmd were up 6% YoY. All segments reported volume growth YoY, which is encouraging. Gujarat Gas is seeing good demand from ceramic and pharma as well as chemical industries. Overall, we believe industrial PNG demand will lead volume...

GGAS is in a sweet spot post ban on competing liquid fuels in Morbi (India's ceramic hub which accounts for ~70% of GGAS industrial volumes). We increase our FY21-23E earnings by 12-17% to factor in strong volume uptick and margin expansion. GGAS reported strong Q3 earnings and we are positive given 1) higher than expected volumes and strong spreads from operating leverage and lower gas cost 2) low competitive intensity post ban on cheaper liquid fuels in FY20, thereby smoothening earnings volatility and...

Gujarat Gas' (GUJGA) Q3FY21 performance sustained the traction seen in Q2, with adj. PAT doubling YoY to Rs 3.9bn.

supported by govt. initiated liquidity measures and 2) strong export demand given cost competitiveness along with opening of new markets in US and Brazil. Improved ceramic market demand augurs well for GGAS as Morbi accounts for over 60% of total sales volumes. Also, ban on competing dirty fuel has led to restricted competition with propane in summer months, thereby improving GGAS's margin visibility. Rising pollution in industrial...

Margin contraction in Q3FY21 is a concern and could keep the stock price volatile in the near term; however, recent roll-back of Rs. 4/scm discount on industrial PNG would improve the margin back to Rs. 5-5.5/scm in Q4FY21. Moreover, volume growth guidance of 10%12% p.a. to drive strong 20% PAT CAGR over FY20-FY23E along with high RoE of 27.5% Potential NGT crackdown of polluting industrial areas in Gujarat and ramp-up of volume from 7 new GAs provides strong impetus for sustained high volume growth. GGAS is one of the best bets in the CGD space as consistent high-volume growth and potential to become net cash positive by FY22 makes valuation of 16.8x its FY23E EPS attractive. Hence, we maintain our Buy rating on GGAS with a revised PT of Rs. 452....

Sales volumes have seen sharp growth post lockdown and are currently at 10.5 mmscmd. We expect growth momentum in industrial PNG segment to continue and build in volume growth in CNG segment from Q4FY21E onwards. In the long term, rise in volumes driven by regulatory tailwinds, further penetration in existing geographical areas (GAs) and aggressive expansion in newly acquired Gas will lead to sustainable growth. We...

Gujarat Gas' (GUJGA) Q2FY21 earnings were above estimates, surging 8x QoQ to Rs 4.8bn.

Benign spot LNG outlook augurs well for GGAS earnings. We increase our FY21E earnings by 24% to factor in sharp volume recovery and margin expansion given benign spot LNG prices. FY22-23E earnings are increased by 8-10% as we increase margins and volumes. GGAS reported strong Q2 earnings led by higher than expected volumes and record spreads...