Value Pick: Brokerages see up to 69% upside in Gujarat Gas shares amid strong fundamentals, technical triggers

Oil and gas stocks have been in focus since the geopolitical tensions between Russia and Ukraine erupted. The conflict has pushed the global commodity prices higher. Several brokerages see this as a great positive for stocks in this sector. One such stock that is expected to make gains is Gujrat Gas, according to brokerages.

They are betting on strong fundamental and technical triggers. 

State-owned Gujarat Gas hiked rates by Rs 6.5/kg to Rs 76.98. CNG (Compressed Natural Gas) prices in Delhi, Mumbai, according to a PTI report. Gujarat has seen steep hikes after the government raised input natural gas prices to record levels, the report said.

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Brokerages such as Edelweiss Research, Prabhudas Lilladher, and ICICI Direct Research see an upside up to 69 per cent in Gujarat Gas’ share price. The stock on Wednesday closed around 1 per cent at Rs 531.3 per share on the BSE. 

Edelweiss Research 

"We believe, Gujarat Gas will sustain strong double-digit volume growth, particularly driven by new geographies as well as strong growth in the high-margin industrial/CNG business with a significant surge in volumes fuelled by rising Morbi (a plant in Gujarat) exports.  

EBITDA margin may rise during Q4 as the company is charging Rs 106/scm versus Rs 58 for incremental volumes above 5.5mmscmd in Morbi. The brokerage maintained a Buy rating with a DCF (discounted cash flow)-based target of Rs 896 per share (69 per cent upside) at 32.7x FY23E P/E(x).". 

Prabhudas Lilladher  

"We continue to like Gujarat Gas’s resilient business model that remains well placed to benefit from any resolution in geopolitical conditions. Our estimates factor in 14.1 per cent CAGR (Compound Annual Growth Rate) volume growth over FY22-24E and margins of Rs5.0/scm. 

The company has introduced dynamic pricing to pass on incremental higher spot LNG prices. This initiative will help in doubling its Q4 margins sequentially. The brokerage reiterated a Buy with a DCF based target price of Rs 675 per share, which implies an upside of over 27 per cent.". 

ICICI Direct Research 

"The share price of Gujarat gas has been in a trading range between Rs 500 and Rs 760 per share since March 2021. The stock is now rebounding after taking support at the lower band of the range suggesting favourable Risk-reward and fresh entry opportunity. 

A key point to highlight is that after an 11-week corrective phase the stock has first time close above its previous week’s high, suggesting sign of revival and positive momentum is returning in the stock 

We expect the stock to head towards Rs 575 per share (upside of over 8 per cent) on a short-term basis. Among oscillators, Stochastics has generated a bullish crossover and rebounding from oversold territory thus validating positive bias.".