Buy Gujarat Gas: target of Rs 400: Sharekhan

Sharekhan's research repor on Gujarat Gas

Q2FY21 operating profit/PAT at Rs. 733 crore/Rs. 475 crore, up 97.8%/2.4x y-o-y was much ahead of our estimates due to 72% and 4.6% beat in EBITDA margin at Rs. 8.1/scm (up 87.5% y-o-y) and volume at 9.8 mmscmd (up 5.5% y-o-y) respectively. Industrial PNG volumes increased by 9% y-o-y to 7.9 mmscmd due to improved demand from Morbi, CNG volumes recovered sharply to 1.3 mmscmd (up 88% q-o-q but down 13.2% y-o-y) while domestic PNG volumes grew 18% y-o-y to 0.6 mmscmd. GGAS is best-placed in the oil & gas space to benefit from India’s robust gas demand outlook supported by regulatory push to curb pollution. Current volume run rate of 10.5mmscmd is 11.2% higher than FY2020 gas sales volumes. Consistent high volume growth to drive 19% PAT CAGR over FY20-FY23E along with RoE of 25-27% and GGAS to become net cash positive by FY22.

Outlook

Hence, we recommend Buy on GGAS with PT of Rs400. Valuation attractive at 14x FY23E EPS.

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