Gujarat Gas Ltd
(BSE Code: 539336) (CMP: Rs.662.75) (FV: Rs.10)
Gujarat Gas Ltd (GGL), formerly GSPC Distribution Networks Ltd, is engaged in the natural gas business in Gujarat. It is engaged in City Gas Distribution including sale, purchase, supply, distribution, transport, trading in natural gas, compressed natural gas (CNG), liquefied natural gas (LNG), liquefied petroleum gas (LPG) and other gaseous form through pipelines, trucks/trains or other such suitable modes for transportation/distribution of gas. It supplies Piped Natural Gas (PNG) for domestic usage to over 10,80,000 households in Gujarat. It operates the HAPi pipeline, which is a 73.2 km long and 18-inch diameter natural gas pipeline. It supplies PNG to over 11,900 commercial and non-commercial premises across Gujarat. It supplies PNG to ~2,835 industrial customers, covering all the industrial zones across Gujarat. GGL, driven by a sustainable double-digit volume growth (10% CAGR) and gradual uptick in average realizations (8% CAGR), is expected to grow at 19% CAGR to Rs.10730 crore by FY21. Increasing industrial usage of NG, gradual roll out of CNG pumps and rising urbanization is expected to contribute to the volume growth. With improvement in blended realizations, we expect EBIDTA to grow at a faster CAGR of 18% to Rs.1508 crore over the same period. PAT is expected to outpace the EBIDTA growth and scale to Rs.766 crore (38% CAGR) on the back of subdued capex and lower debt. We are extremely optimistic about the long-term volume growth
visibility given that ~62% of DMIC (Delhi Mumbai Industrial Corridor) passes through the state of Gujarat. Once operational, we expect industrial usage of NG to pick up favorably. Further, the Gujarat local transport is expected to migrate to the usage of NG post a favorable verdict from the Gujarat High Court. The public interest litigation (PIL) seeking the ban on diesel-run commercial and public transport vehicles in favor of NG over traditional fuel is pending with the High Court. Given the global concern over deteriorating environment and the fact that India is close to surpassing China as the most polluting country, we expect faster migration to green fuels, especially NG. The GoI’s recent drive of having a pan India network with a capex of Rs.70000 crore bears testimony to the same. We expect strong growth across all 4 segments i.e. PNG Industrial, PNG Domestic, PNG Commercial and CNG. Industrial volumes are expected to grow 11% from 4.6 mmscmd as at Q2FY19 to 5.9 mmscmd by FY21 on favorable tail winds and rising prices of alternative fuels like FO, coal and lignite. GGL enjoys a dominant position in terms of reach of residential customers and volumes. Its current base of 12,50,000 subscribers is expected to reach 15,38,000 by FY21, with volume growth of 7% CAGR from 0.5 mmscmd to 0.6 mmscmd over the forecast period on the back of rising urbanization. GGL’s commercial segment has a minimal share of the revenue. Its volumes are expected to grow at 4.7% CAGR from 0.1 mmscmd currently to 0.12 mmscmd by FY21. Its CNG segment, which contributes to ~20% of the total revenue, is supported by 291 existing CNG stations. The growth of the CNG segment is sporadic as setting up of new stations requires government sanction. Although GGL is willing to add 40-50 stations a year, the empirical evidence suggests that 10-15 new gas stations on an average have been commissioned in the past. We have assumed the number of stations to grow 14% to reach a total of 333 CNG stations by FY21. We expect volumes to grow at 14.3% CAGR leading to revenue growth of 23% CAGR to Rs.2263 crore aided by periodic hikes in average pricing.
Technical Outlook: The stock looks good on the daily chart for medium-term investment. It has broken out from the downward channel pattern formed on the daily chart. The stock trades below all important moving averages like the 200 DMA level on the daily chart.
Start accumulating at this level of Rs.662.75 and on dips to Rs.620 for medium-to-long term investment and a possible price target of Rs.750+ in the next 12 months.