City gas distribution major Gujarat Gas has posted a standalone net profit of ₹59 crore for the first quarter ended June 2020, as against ₹234 crore reported in the same quarter last year.

The standalone revenues from operations witnessed a drastic fall to ₹1,107 crore for the quarter, which was recorded at ₹2,671 crore in the corresponding quarter a year ago, due to the Covid-19 impact

However, analysts have turned bullish and upgraded the stock with improved target price, as they believe in faster recovery in volumes, lower risk from open access and upside optionality from policy support.

Motilal Oswal Financial, which reiterated its buy rating on Gujarat Gas with a price target of ₹360, said: “The company mentioned that current sales volume stands at 9.5 mmscmd (v/s 9.4 mmscmd of average sales in FY20), aided by strong recovery post lockdown. As per our interaction with the company, Morbi volumes are back at approximately 5.5 mmscmd (v/s exit rate of nearly 6.5-6.8mmscmd in FY20).

According to global investment advisor Jefferies, while volumes were in line, expansion in gross margin was even ahead of estimates. It retained the ‘buy’ stance and raised the target price to ₹415 driven by EPS upgrade on higher margin.

Despite lockdown, Gujarat Gas was able to add 13 new CNG stations during the quarter and plans to add around 60 new stations this year (of the total 100 planned outlets — which should further grow the reach of CNG in Gujarat and encourage conversions), said Motilal Oswal.

The newly awarded 16-17 cities could see volumes of 2.5-3mmscmd over the next four to five years. Thus, the company could see a major boost in volumes at CAGR of about 10 per cent over the medium term on the highest volume base among peers, Motilal Oswal added.

Another domestic brokerage Emkay Global said: “We upgrade Gujarat Gas to Buy from Hold and raise the TP by 40 per cent to ₹365 on robust volume and stable margin outlook. Gas sales volumes have recovered fully to 9.5 mmscmd currently with multiple growth triggers going ahead.”

According to foreign broking firm CLSA: “Q1 Profit is 66 per cent ahead of its estimates, driven by beat in unit margin. Volumes saw sharp recovery boosted by normalisation in industrial volume. We raise FY21 volume forecast & FY21 EPS estimates by 18 per cent,” CLSA said while recommending a ‘buy’ on Gujarat Gas with a target price of ₹370.

According to ICICI Securities, current volumes are higher than FY20 average volumes but below the Q4FY20 peak. “To factor the stupendous recovery, we have raised our volume and margin estimates leading to 41-21 per cent upgrade in FY21-FY22 EPS and 17 per cent upgrade in our DCF-based target price to ₹313 (2 per cent upside),” said ICICI Securities, which, however, retained ‘hold’ rating on Gujarat Gas..

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