Gujarat Gas Ltd. posted June quarter profits that were lower than expected, somewhat offset by somewhat higher-than-expected volumes. While an increase in other revenue more than made up for a decrease in Ebitda, net income fell slightly short of analyst projections. The gas utility revised down its volume growth prediction from 10% to 6-7 percent for FY25.
The management of Gujarat Gas anticipates a 30–40% QoQ reduction in industrial PNG volumes in the Morbi cluster during the September quarter. The current supply level to the Morbi cluster is 2.5–3 mmscmd. Some experts are pessimistic about the future of Gujarat Gas stock since they think the counter has excessive prices.
Nomura India indicated a 'Reduce' rating on Gujarat Gas, with a target price of Rs 470, citing worries about GGL's ongoing volume recovery in its important Morbi region, given the susceptibility to demand amid lower propane versus natural gas prices. The shares closed at Rs 621.30 on Thursday, down 2.37%.
"GGL is one of the world's most expensive gas utility businesses, trading at 22.6 times FY26F P/E, despite the hurdles it confronts in volume recovery and growth. GGL's sensitivity to Ebitda is: (1) 5% if the volume is 1mmscmd lower than factored, and (2) 9% if margins are INR0.5/scm lower than factored," Nomura India stated.
Analysts estimate Morbi volumes to be reduced in the September quarter owing to ceramic factory shutdowns for the festive season of 'Janmashtami', fewer exports due to persistent shipping challenges caused by geopolitical tensions in the Middle East, and monsoon interruptions.
Emkay Global stated that the volume growth projection for FY25 is 5-7%, compared to the average aim of 10%. "GGL emphasized an emphasis on CNG expansion. We continue our bearish position on GGL, citing propane competition, variable margins, cautious outlook, and expensive valuations (24 times Sep-26E EPS against peers at 10-15 times); we remain SELL and raise Sep-25E TP to Rs 500 per share," it stated.
HDFC Institutional Equities rates Gujarat Gas as 'ADD', with a price objective of Rs 655 per share, citing pricing competition from alternative fuels in the industrial market as limiting margin expansion prospects. This brokerage stated that significant volume growth is factored in at the present pricing.
Meanwhile, Nuvama has maintained its 'Buy' recommendation on Gujarat Gas. "GGL will maintain significant volume growth, driven by new GAs, CNG stations, and the resurrection of the I-PNG industry. It maintains consistent OCFs adequate to fulfill its capex requirements. We are upgrading FY25E/26E EPS by 5%/25% while keeping the target price intact at Rs 745; retain 'BUY'," it added.
