Gujarat Gas – Softness In LNG Prices Obscures Murky Long-Term Prospects: ICICI Securities

• Posted in OilGas
• on January 2, 2024
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We downgrade Gujarat Gas Ltd. to Reduce, from ‘Hold’, as we turn increasingly worried about the company’s growth trajectory beyond FY25. The recent weakness in liquefied natural gas prices is a positive (assuming it is not passed through) and drives a material 6/19.1/15.3% upgrade in FY24E/25E/26E earning per share, but does not detract from structural worried

Growth from areas ex-Morbi remains murky, with limited traction observed from the ~Rs 43 billion capex over FY19-23 and a further Rs 36 billion estimated over FY24-26E. (volume/Ebitda compound annual growth rate over the same period at 8/14%);

Margins remain volatile and dependent on propane price vagaries; Gujarat Gas guidance on margins is cautious, topped with limited visibility on volume growth; and The company’s valuation is still at >20 times FY26E EPS, leaving room for more downside risks.

Key upside risks:
Sharper recovery in liquified petroleum gas (propane) prices,
Faster execution of expansion plans in new areas,
Sharp drop in LNG prices.

Key downside risks:
Longer sustained weakness in propane prices,
Slower ramp up of volumes from new areas,

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