ICICI Direct is bullish on Gujarat Gas has recommended buy rating on the stock with a target price of Rs 145 in its research report dated February 12, 2019.
ICICI Direct's research report on Gujarat Gas
Gujarat Gas reported a good set of numbers on the profitability front in Q3FY19. Revenues increased 34.8% YoY to Rs 2117.4 crore. Total reported volumes increased 4.1% YoY and came in at 6.6 mmscmd vs. our estimate of 6.9 mmscmd. Volumes were below our estimates on account of lower sales volumes QoQ on the industrial PNG front Realisation were higher than our estimates at Rs 35.1/scm (our estimate: Rs 34.4/scm). Also, a lower-than-expected increase in gas costs led to an increase in gross margins, which were at Rs 8.1/scm (~up 35% YoY) vs. our estimate of Rs 6.9/scm leading to an EBITDA of Rs 321.2 crore above our estimate of Rs 268.4 crore Subsequently, PAT increased 130% YoY and came in above our estimates at Rs 138 crore.
Outlook
Gujarat Gas has been rapidly expanding its reach in Gujarat by way of securing licences to expand its CGD network across five new areas, making it to a total of 20 districts of Gujarat, Dadra and Nagar Haveli, Thane and Palghar in Maharashtra. Also, lower costs will help Gujarat Gas maintain steady growth in profits. We now value Gujarat Gas at 21x FY20E EPS of Rs 6.9 to arrive at a target price of Rs 145 with a BUY recommendation.
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