2 Blue Chip Gas Stocks To Buy That Have A Huge Potential To Rally

Gas stocks are showing signs of life once again, after being firmly stuck on high natural gas prices. Analysts now remain optimistic on the sector and see good growth going forward. Here are 2 blue chip gas stocks that one can buy.

Indraprastha Gas

Prabhudas Lilladher remains optimistic on the stock and has recommended a buy with a price target of Rs 576.

"We increase our FY23/24E earnings higher by 3% as we lower depreciation charges while we maintain our volumes and margins in a rising gas cost environment. IGL reported superlative results with EBIDTA/PAT of Rs6.2bn (+23%Q/Q; PLe Rs4.5bn) and Rs4.2bn (+16%Q/Q; PLe Rs3.1bn) due to higher margins and volumes. Volumes were higher QoQ partly despite a seasonally weak quarter at 8.0mscmd (+4%Q/Q)," the brokerage has said.

Indraprastha Gas: Pricing pressures may augur well for gas players

In the near term, rising price of domestic gas supplied to City Gas Distribution (CGD) due to blending of high priced spot LNG volumes will be a concern (even though company passed it on to customers). "However, Reliance Industries KGD6's higher blending with additional deep water supplies of 12mmscmd (to gradually ramp up) from Oct-22 will ease pricing pressure. CGD industry has made representation to the government of rising gas prices and company remains hopeful of near term solution.

Price target of Rs 576 on the stock of Indraprastha Gas

Indraprastha Gas remains an enviable business model with high volume growth due to geographical expansion and addition of new buses and taxis. Reiterate "BUY" with DCF-based price target of Rs 576 (Rs 589) as we lower the depreciation amount in line with Q1 trends," Prabhudas Lilladher has said in its report.

Buy Mahangar Gas for a price target of Rs 1103

Another gas stock that analysts from Prabhudas Lilladher recommend is the stock of Mahanagar Gas. Mahanagar Gas management clarified that gas price supplied to CGD has increased to USD10.5/mmbtu in Aug-22 vs USD8 in Jun-22. Higher gas cost is due to increased blending of high cost spot LNG volumes as domestic supplies lag. However company remains hopeful of resolution, as new supplies from KGD6 of 12mmscmd will likely start from Oct-22 and gradually ramp up. "We maintain our FY23/24E EBIDTA/scm margins of Rs8.8/9.5/scm vs FY22 levels of Rs 8.4," Prabhudas Lilladher has said.

Economic activities to drive volumes

Prabhudas Lilladher analyst believe economic factors such as 1) introduction of new CNG buses by state government, 2) new three wheelers along with geographical expansion to Raigad and Karjat will support volumes. Also, government's push towards PNG's domestic connections will add volume traction.

Significant upside expected in the stock of Mahanagar Gas

Mahanagar Gas remains a play on increased gas usage from rising vehicles and piped natural gas penetration. "We like the business because of its dominating share in growing markets of Mumbai and its suburbs. Reiterate 'BUY' with a target price of Rs 1,103 (unchanged)," Prabhudas Lilladher has said in its report.