Elara Capital
Gujarat Gas (Buy)
CMP: ₹157.9
Target: ₹208
Gujarat Gas has started installing a third GSPL connectivity terminal at Morbi to increase network capacity to 6.5 mmscmd from the current 4 mmscmd. The company claims GSPL connectivity terminal would be ready in two months, but it is likely to happen in 4-6 months. Post this, the remaining 200 units would start receiving natural gas. Until then, Gujarat Gas Morbi volume would be capped at 4 mmscmd. However, industry firms say the current industry utilisation of about 70 per cent is at a level at which supply-demand is at an equilibrium.
Valuation: We believe the company will benefit from higher gas sales volume at Morbi as well as competitive LNG prices over FO, resulting in a rise in long-term EBITDA/scm margin to be maintained at ₹4.5/scm. We reiterate Buy and raise our target price to ₹208 from ₹180 on strong gas sales volume growth. Our new target price is based on a DCF method, with a 10.5 per cent WACC (unchanged), a 17 per cent volume CAGR during FY19-24E, 4.0 per cent long-term demand growth and implied 19.0x FY21E P/E.
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