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Synopsis: Gujarat Gas Ltd remains one of the most expensive gas utility stocks globally, with a P/E ratio of 22.6 times FY26F. The company is facing challenges such as slower volume recovery and reduced growth prospects, particularly in the Morbi cluster. While some analysts recommend selling due to high valuations and conservative guidance, others remain optimistic about future growth driven by new developments in the CNG and industrial segments.
In the June quarter, Gujarat Gas reported lower-than-anticipated margins, though this was partially offset by slightly better-than-expected volumes. However, net income fell short of analyst estimates, with lower EBITDA being compensated by an increase in other income. The company has since revised its volume growth guidance for FY25 downward to 6-7% from an earlier target of 10%.
The outlook for the upcoming quarter remains grim, particularly for the Morbi cluster, where industrial PNG volumes are expected to decline by 30-40% quarter-on-quarter due to several factors, including the festive season, reduced exports caused by geopolitical tensions in the Middle East, and disruptions from monsoons.
Analyst Recommendations:
Nomura India has issued a 'Reduce' rating on Gujarat Gas, with a target price of ?470. They cite concerns over the company's ability to sustain volume recovery in the Morbi region, especially given the competitive pressures from propane.
Emkay Global maintains a 'Sell' rating, pointing to the company's conservative guidance, volatile margins, and high valuation, recommending a target price of ?500.
HDFC Institutional Equities has an 'Add' rating with a target of ?655, noting that competitive pricing from alternative fuels could impact margins.
Nuvama remains optimistic, retaining a 'Buy' rating with a target price of ?745, based on expectations of strong volume growth driven by new geographical areas, CNG stations, and a revival in the industrial PNG segment.
