There has been a significant decline in the shares of Gujarat Gas. This stock has become 35 percent cheaper this year and about 46 percent cheaper than the record high.
Gujarat Gas Stock Price: Many Gujarat based companies have outperformed even in the downturn of the market this year. However, during this period, the shares of Gujarat Gas have declined significantly. This stock has become 35 percent cheaper this year and about 46 percent cheaper than the record high. The brokerage house has now expressed hope of a great rally in Gujarat Gas. The brokerage says that the fundamentals of the company are strong and its valuation has also become attractive after the recent fall. From the current price, 35 percent upside is expected in the stock. This company does the work of distribution of natural gas.
What are the concerns for the company
Brokerage house ICICI Securities says that Gujarat Gas (GGL) shares have a great investment opportunity at the current price. The stock has declined in the last few days due to multiple concerns. There was concern among investors regarding volumes and margins. On the other hand, in the next 12 months, due to high gas prices, stable prices of petrol and diesel and large-scale propane migration in Morbi, there will be concerns for the gas distribution company.
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However, the brokerage house believes that the current valuation rule of 19.7x FY24E EPS, 11.5x EV/EBITDA is a bigger factor than term concerns. This valuation is attractive. Also, the estimation of volume hit through propane and margin is not too alarming. The brokerage house has a positive view on Gujarat Gas for the next 18-24 months. The brokerage has cut EPS estimates by 20 per cent and 10 per cent for FY23/24E. The brokerage has given investment advice in the stock, but has reduced the DCF based target price to Rs 566.
Margin volatility forecast
The brokerage house says that volatility can be seen in margins but no structural fall has been observed. The brokerage says that margins for GGL will remain volatile. Margins will remain strong in low gas cost quarters and weak due to high cost environment. EBITDA/scm is further expected to remain at 5.2-5.5/scm and there is no change by the brokerage. At current prices, GGL has passed on the benefit of spot LNG at US$25/mmbtu as per the brokerage’s calculations.
