Gujarat Gas Shares Gain As Analysts Remain Bullish After Q4 Results

A petrol pump employee fills Compressed Natural Gas. (Photographer: Prashanth Vishwanathan/Bloomberg News)

Gujarat Gas Shares Gain As Analysts Remain Bullish After Q4 Results

Shares of Gujarat Gas Ltd. gained as most analysts remained bullish on the city gas distributor even as fresh lockdowns due to mounting Covid-19 cases are seen to impact volumes in the quarter ending June.

The company saw its overall volume of gas sale at 12.13 million metric standard cubic metres per day in the January-March period, up 4% over the preceding three months, according to its exchange filing.

Other highlights (QoQ)

  • Operating profit stood at Rs 554 crore, down 10%.
  • Profit fell 11% to Rs 350 crore.
  • Operating expense per unit for Q4 was at Rs 2.0 versus Rs 1.9 in Q3.

Year-on-year, the operating profit and profit after tax rose 30% and 42% to Rs 554 crore and Rs 350 crore, respectively, in the reported quarter.

Shares of Gujarat Gas rose as much as 6.8% to Rs 577 apiece before paring gains. The stock’s three-day winning streak has taken it to just Rs 3 shy of its record high. Of the 32 analysts tracking the company, 22 have a ‘Buy’ rating, six suggest ‘Hold’ and four recommend ‘Sell’, according to Bloomberg data. The stock ended day’s trading up 5.10% at Rs 567.95.

Also read: Gujarat Gas Q4 Review - Headwinds To Volumes, Margins, Probably Short-Term: ICICI Securities

Jefferies

Here's what brokerages make of Gujarat Gas' Q4 earnings:

  • Maintains ‘Buy’ rating, raises target price to Rs 620 apiece from Rs 595 earlier.
  • Overall volumes in Q1 FY22E are around 20% below normal amid the second wave.
  • “Price hikes taken and favourable gas sourcing keep us comfortable on margin outlook despite rising spot LNG costs.”
  • “Better-than-expected 4QFY21 does reinforce our thesis of strong volume growth and better margin visibility for Gujarat Gas.”
  • Gujarat Gas remains the brokerage’s preferred pick in the city gas distribution sector due to strong upside optionality in volumes, better longer-term growth visibility, improved pricing power and lower risk from electric vehicle disruption.

CLSA

  • Revises rating on stock from ‘Buy’ to ‘Outperform’, hikes target price to Rs 570 from Rs 510.
  • Q4 was strong, but limited margin and valuation tailwinds ahead.
  • Lockdowns hurt volume in Q1FY22 but this should normalise soon after restrictions are lifted.
  • Overall volumes rose to a new high of 12.1 mmscmd, driven by stronger-than-expected CNG volume.
  • Higher share of industrial volume should drive a faster recovery.

Emkay Financial

  • Maintains ‘Hold’ rating with a target price of Rs 520 apiece.
  • Earnings outlook is steady, though valuations are stretched with spot LNG a key risk.
  • CNG volumes were healthy with 11% growth sequentially. Other income was flat year-on-year at Rs 18.8 crore, missing the brokerage’s estimate.
  • Other risks: Adverse oil and gas prices, currency, regulations, competition and operational-project issues.

Motilal Oswal

  • Maintains ‘Buy’ with a target price to Rs 615 per share, implying an upside of 15%.
  • Gujarat Gas reported a beat on the brokerage’s numbers, driven by better-than-estimated Ebitda.
  • CNG achieved its highest ever quarterly volumes. Pivotal was addition of 150 new CNG stations in FY21 totaling to 559 CNG outlets versus Indraprastha Gas Ltd.’s 573 stations.
  • Volume estimates for FY22 were conservative at 12.3 mmscmd and thus remain unchanged even after considering the Covid impact.
  • “Bhatinda has huge potential for industrial gas consumption; hence, we revise up our FY23E volumes to 14.6 mmscmd (from 13.8 mmscmd earlier).”
  • Ebitda margin was strong during the quarter on the back of an industrial price hike.
  • The company plans to add around 200 new CNG stations in FY22. “This, we believe, would increase the CNG volume mix and aid margins.”

Also read: Gujarat Gas Q4 Review - Prodigy Of The Gas Business; Faith Remains Intact: Motilal Oswal

Yes Securities

  • Upgrades to ‘add’ from ‘reduce’, raises target price to Rs 565 apiece from Rs 515, implying an upside of 4.6%.
  • Operating profit though stronger YoY, stood weaker on sequential basis on account of sudden and sharp increase in global LNG prices over the quarter.
  • The recovery from Covid is expected to be strong with exit rate for FY22 estimated in excess of 13mmscmd for sales.
  • The margin environment in FY22 is also estimated to be firm, with inclusion of favorably priced gas from Reliance Industries Ltd. and Cairn, in sales mix, leading to lower dependence on spot LNG.

Prabhudas Lilladher

  • Maintains ‘buy’ rating with a target price of Rs 666 apiece.
  • “We change our FY22/23E earnings by -4%/+3% to factor in near-term volume impact due to pandemic concerns and even increase our FY23E estimates.”
  • Q1 year-to-date volumes down about 18% QoQ, however, receding pandemic overhang to help industrial volumes recover fastest given strong downstream demand.
  • Near-term weakness offers good entry point, as the company will benefit from rising judicial activism to control industrial pollution in the long term.
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