Accumulate Gujarat Gas; target of Rs 141: Dolat Capital

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Dolat Capital's research report on Gujarat Gas

Gujarat Gas volumes were in line with estimates at 603 MMSCMD. Revenue at ` 21 bn in line with estimates. We are positively surprised by the profitability performance Gujarat Gas took price hikes to negate increase in input cost. Gross spreads were higher by 49% on a sequential basis. This is probably the highest spread ever reported by Gujarat Gas after BG exit. In the past, Gujarat Gas has shown high level of spreads and revert to lower levels in the immediate following quarter. We will like to closely watch this trend in coming quarters. With recent strategy of management to focus on profitable volumes, we believe that margins should sustain around ` 8 per SCM in the current quarter. Volumes are expected to increase as the reach expands and hence will take some time.

Outlook

We believe that if Gujarat Gas spreads can be sustained consistently, stock is due for a re-rating. We bring in FY21 estimates. Upgrade to Accumulate with a target price of ` 141 based on DCF valuation.

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