Three main factors explain why experts anticipate a 33% increase in Gujarat Gas's share price, which climbs by 3.5%

Three main factors explain why experts anticipate a 33% increase in Gujarat Gas's share price, which climbs by 3.5%

Stock Market Today: On Monday, intraday transactions saw a 3.5% increase in the price of Gujarat Gas shares. Despite the company's disappointing third-quarter profits performance, analysts remain optimistic about the stock, projecting an upside of up to 33% due to increased CNG volumes and an anticipated reduction in LNG costs.

During Monday's intraday trading, the price of Gujarat Gas's shares increased by as much as 3.5%.

In Monday's intraday transactions, the share price of Gujarat Gas increased by 3.5%. Following Friday's third-quarter earnings, the stock dropped more than 6%, albeit it eventually rebounded very well.

The third quarter's profits performance was quite disappointing, mostly because of poor margins. Some poor volumes and margins for Gujarati gas supply to the Morbi industrial cluster are the main cause of this.

While year-over-year growth was 26%, Gujarat's total gas volumes for the quarter fell 2% sequentially to 9.16 MMSCMD (million standard cubic meters). While Morbi led the way with 3.65 mmscmd (down 6% sequentially, up 74% yoy), overall industrial volumes stood at 5.53 mmscmd (down 6% sequentially, up 37% yoy).

With target prices of Rs 745, Rs 615, and Rs 645, respectively, with the stock trading at Rs 560, analysts at Elara Securities, Sharekhan, and Antique Stock Broking have projected an upside of up to 33% for the company after the Q3 miss.

Important explanations for brokerage firms' optimistic outlook.

robust volume increase for CNG

Volumes of compressed natural gas, or CNG, continued to rise and hit a new high of 2.78 MMSCMD (+6% QoQ, +14% YoY). Sharekhan analysts reported a 4% drop in CNG volumes, while Antique Stock Broking analysts predicted that CNG would be the company's main source of volume growth.

In order to establish more CNG stations, the business recently introduced the FODOCO (Full Dealer Owned Dealer Operated) model, for which it has already received 700 online applications. In the next years, the firm plans to establish 200 CNG stations from this. Antech analysts predict that this will result in a 15%–20% increase in volume within the category overall.

Volumes will soon begin coming as a result of the implementation of the January rural order from Ahmedabad. In the medium run, the field's combined industrial and CNG capacity is 0.5 mmscmd, according to Antech analysts.

Increased EPS forecasts for FY25E–26

Due to an increase in CNG volumes, Elara Securities India Pvt Ltd has increased its forecasts for FY25 and FY26 EPS by 13% and 32%, respectively, to 11.5 mmscmd (from 10.6 mmscmd) and 13.2 mmscmd (from 11.8 mmscmd). Over the next four years, significant worldwide increases to LNG capacity are anticipated to boost industrial volumes and perhaps drive down gas costs.

The decline in LNG prices would benefit Gujarat Gas as it depends on imported liquefied gas cargoes to satisfy piped natural gas (industrial) demand.

Decrease in the cost of imported LNG

Analysts at Elara anticipate an increase in LNG export capacity of 40 million tonnes annually over the next four years, starting in the second half of FY2015. This should result in a decrease in gas costs.

As a result of the significant drop in spot LNG pricing and the significant spare capacity anticipated over the next several years, analysts at Antique Stock Broking also predicted that spot LNG prices would stay low, which might cause propane volumes to rise again. side of natural gas.