- Gujarat Gas shares bounced back by 3.5% after a 6% dip post-Q3 results, showcasing resilience.
- Despite Q3 earnings miss due to margin weakness, analysts remain upbeat, citing strong CNG volume growth and strategic initiatives.
- Positive outlook driven by higher EPS estimates, potential CNG station expansion, and anticipated decline in global LNG prices.
Gujarat Gas saw its share prices go up by 3.5% during Monday’s trading. This came after a bit of a drop of over 6% following their Q3 results on Friday, but the stock managed to bounce back nicely.
The disappointment in their Q3 earnings was mostly because their margins weren’t as strong as expected. This was partly due to lower volumes and margins for the gas they supply to the Morbi industrial cluster.
During the quarter, Gujarat Gas sold a total volume of 9.16 million standard cubic meters of gas, which was a 2% decrease compared to the previous quarter but a 26% increase compared to the same time last year. The industrial volume, especially to the Morbi cluster, went down by 6% sequentially but went up by a whopping 74% compared to last year.
Despite the Q3 miss, analysts at Elara Securities, Sharekhan, and Antique Stock Broking still have a positive outlook on the stock. They’ve set target prices ranging from ₹615 to ₹745, indicating a potential upside of up to 33% from the current levels around ₹560.
One of the main reasons for this optimism is the strong growth in compressed natural gas (CNG) volumes. CNG volumes hit a record high of 2.78 million standard cubic meters, showing a 6% increase from the previous quarter and a 14% increase from last year. Analysts believe that CNG will continue to drive volume growth for the company.
Gujarat Gas has also introduced a new model called FODOCO (Full Dealer Owned Dealer Operated) to set up additional CNG stations. They’ve received 700 online applications and plan to set up 200 CNG stations over the next few years, which could lead to a 15%-20% increase in volume.
Another positive development is the implementation of the Ahmedabad Rural order from January, which is expected to bring in more volumes. Analysts believe that the area has the potential for a total volume of 0.5 million standard cubic meters in the medium term, combining industrial and CNG usage.
Analysts have also raised their earnings per share (EPS) estimates for FY25 and FY26. This is based on expectations of higher gas sales volumes, reaching 11.5 million standard cubic meters and 13.2 million standard cubic meters respectively. They anticipate this growth due to increased CNG usage and a rebound in industrial volumes, driven by global LNG capacity additions.
Additionally, the decline in imported LNG prices is seen as a positive factor for Gujarat Gas. Analysts expect 40 million tonnes per annum of LNG export capacity to be added globally in the next four years, leading to softer gas prices. This could potentially divert propane volumes back in favor of natural gas.
Despite the Q3 earnings disappointment, Gujarat Gas is expected to perform well in the future, driven by strong CNG volume growth, the implementation of new strategies like FODOCO, and the expected decline in imported LNG prices. These factors have led analysts to maintain a positive outlook on the stock.