Buy This Gas Distribution Company Stock, It Can Gain 35% From Current Levels

Broking firm, Motilal Oswal is bullish on the stock of Gujarat Gas Limited, which is India's largest City Gas Distribution company, with 27 CGD licenses spread across 43 districts in 6 states and 1 Union territory in the states of Gujarat, Maharashtra, Rajasthan, Haryana, Punjab and Madhya Pradesh and Union Territory of Dadra & Nagar Haveli.

Buy the stock for an upside target of 35%

The brokerage sees an upside target of nearly 35% on the stock of Gujarat Gas from the current levels of around Rs 630.

Estimates on financials of Gujarat Gas, Rs in Billion

	FY 2022 (e)	FY 2023 (e)
Revenues	124.9	Rs 187
Net profits	Rs 13.8	Rs 19.7
EPS	Rs 20	Rs 28.6
Book value per share	Rs 83.1	Rs 108.80
RoE	27.00%	29.80%

 

Target price of Rs 850 on the stock of Gujarat Gas

The sharp hike in gas prices by Gujarat Gas clearly indicates the company would try to protect its margins even in adverse situations, Motilal Oswal has said in its report. "On the contrary, since CNG impacts the lower strata of the economic population, we expect margin contraction in the CNG segment for all city gas distribution. Gujarat is home to five industrial clusters, classified as ‘severely/critically polluted' in terms of air pollution. As we emerge from the COVID pandemic, we expect to see stricter norms implemented in these industrial clusters, which may raise Gujarat Gas' volume prospects," the brokerage has said.

"Gujarat Gas trades at 22 times FY23 EPS. On strong volume prospects, we value the company at 28x Sep'23 EPS; we re-iterate Buy, with target price of Rs 850," Motilal Oswal has said in its report.
According to the brokerage the volume potential for Gujarat Gas remains the best among the city gas distribution companies owing to its highest exposure in the Industrial segment. "The recent Supreme Court order in favor of the company for Ahmedabad rural further presents the prospect of 0.8-1mmscmd over the next 2-3 years," the brokerage has said.

Disclaimer:

The above report is prepared from the recommendations of Motilal Oswal Institutional Equities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies Pvt Ltd, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. The above article is for informational purposes only.