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Motilal Oswal
Target: ₹2,800
CMP: ₹2,485
Gujarat Gas (GUJGA) has taken a price cut of ₹2.5/scm on PNG Industrial at Morbi, as per our interaction with the company. Therefore, gas price realisation now stands at ₹24.5/scm, bringing the economies of gas at par with the current low LPG prices.
According to our observation of the recent movement in prices, LPG prices fell to a record low and subsequently revived off the trough (similar to Brent prices); however, it is still down 35 per cent y-o-y. Historically, LPG prices are usually cheap during the monsoon season, while prices spike during winters, driven by higher heating demand.
Industrials account for over 75 per cent of the sales volume for Gujarat Gas — Morbi constitutes nearly 75 per cent of the total industrial volume. The company has seen the fastest recovery in volumes post lifting of the lockdowns. Also, the company should see a major volume boost of about 10 per cent CAGR over the medium term on the highest volume base among peers.
We reiterate Gujarat Gas as our top Buy, with the best RoE profile of 22-26 per cent and an expected FCF generation of about ₹2,000 crore over FY21-FY22.
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