BSE ID : 539336 NSE ID : GUJGASLTD
RECOMMENDED PRICE 579.45
PEAK FROM RECO 786.65 35.76%
CURRENT PRICE 665.40 14.83%
Gujarat Gas, with the largest addressable area in one of the leading industrialized states, offers a compelling investment opportunity in the City Gas Distribution (CGD) business. We initiate coverage on GGL with a BUY with a DCF based valuation of Rs 1,030 per share, representing an approx. 77% upside from the CMP of Rs 579.45.
Gujarat Gas Limited (formerly known as GSPC Distribution Networks Limited), has emerged as India's largest city gas distribution player with a presence spread across 18 districts in the State of Gujarat, Union Territory of Dadra Nagar Haveli and Thane GA, which includes Palghar district of Maharashtra. GGL has India's largest customer base in major user segments.
Gujarat Gas Ltd. (GGL), with the largest addressable area in one of the leading industrialized states, offers a compelling investment opportunity in the City Gas Distribution (CGD) business. We expect strong double digit growth in the company’s gas volumes in the long term given that:
A large portion of its addressable area is virgin market with high levels of industrial activity. This will ensure strong demand for all its product segments viz CNG, PNG and industrial gas.
The DMIC project, planned industrial clusters and Smart City development will ensure sustainable demand growth in areas where GGL is already present.
A future ready gas grid will mean faster sweating of assets & lighter capex going forward. Debt reduction will also play out as the story unfolds.
There has been a rebound in the prices of competitive fuels like FO (furnace oil), coal and pet coke. This will result in a return of the migrant volumes to NG. The reduction in subsidy on LPG and rebound in prices of petrol and diesel will improve the attractiveness of NG as a clean fuel alternative. This will not only lead to resurgent volume growth but also restore pricing power and hence, margins.
India’s signing of the Paris convention on climate change is a game changer. We expect NG patronage as a clean fuel to provide strong visibility to gas consumption in favour of fossil fuels.
We initiate coverage on GGL with a BUY with a DCF based valuation of Rs 1,030 per share, representing an approx. 77% upside from the CMP of Rs 579.45.
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