Invest In This Multibagger Mid-Cap Stock For 34% Gain, Declaring Dividend For The Last 5 Years

ICICI Securities, renowned brokerage firm, is bullish on the stock of Gujarat Gas Ltd for a potential gain of 34% if you buy the stock at its current market price of Rs 422 apiece. Gujarat Gas (GGL) presents an excellent opportunity to enter the stock at current levels, with the stock seeing multiple concerns buffeting the stock price (down 14% last 3 months) amidst multiple concerns on volumes and margins.

Indeed, the next 12 months will be concerning for CGDs (City Gas Distribution), with high gas costs, stagnant petrol and diesel prices (due to no price hikes) and for GGL, the threat of large scale propane migration at Morbi.

Gujarat Gas Ltd Stock Outlook

The current market price of the stock is Rs 422.35 apiece with a 52-week high of Rs 786 apiece and 52-week low of 403 apiece. ICICI Securities has recommended investors to buy the stock for a potential gain of 34% if they buy it at the current market price of Rs 422.35 apiece. The stock can reach the target price of Rs 566 apiece.

Dividend: Gujarat Gas Limited has a strong dividend track record and has been declaring dividend for the last 5 years without fail. Gujarat Gas has declared an equity dividend of 100.00% amounting to Rs 2 per share for the year ending March 2022. The ex-dividend date is September 8, 2022. If the current share price of Rs 422 apiece is considered, the dividend yield is turning out to be 0.47%.

 

 

Multibagger returns: The stock has given multibagger returns to investors with 183.1% return in 5 years. It has given a negative return of 37.43% in 1-year.

Current Market Price	Rs 422.35
Target Price	Rs 566
Potential Gain	34%
52-week high	Rs 786
52-week low	Rs 403
1-year return	-37%
5-year return	183%

Morbi worries overblown

Extrapolating the current weakness in LPG prices (LPG prices have declined to US$80 0/t in June vs US$940/t in April which has expanded discount to Brent to record lows of US$35-36/bbl) is overly pessimistic. Our sense is as LPG discounts to Brent normalise to US$18-22/bbl levels, propane prices will return to closer parity to spot LNG. This implies volume displacement will remain in 20-25% range of overall volumes (gas equivalent) of 8.5-9mmscmd estimated by FY24E, much lower than the bearish 4.5-5mmscmd volumes being feared to be lost post the recent price trends and announcements by Morbi Association officials.

Margins may see volatility but no structural decline seen

We have highlighted earlier that margins for GGL will remain volatile, with strong margins made in low gas cost quarters and vice versa for high cost environment. Our thesis on EBITDA/scm sustaining at Rs5.2-5.5/scm does not change even in current scenario. Our calculations suggest that at current prices, GGL has passed on the benefits of spot LNG at US$25/mmbtu assuming approximately10.6mmscmd of volumes. With current volumes at approximately 10.2mmscmd, margins are trending @Rs8/scm EBITDA for H1FY23E and even factoring in a weaker H2FY23E due to higher gas costs; we still believe Rs 5.2-5.3/scm EBITDA is achievable in FY23E.

Recent stock correction makes valuations compelling; reiterate buy

According to ICICI Securities, "Post the recent 14% fall in the stock price (last 3 months), GGL presents a compelling opportunity to enter the stock. Taking cognizance of the uncertain cost and margin opportunity to enter the stock. Taking cognizance of the uncertain cost and margin environment, we assume more conservative estimates for volume and margins for FY23/24E, implying a reduction of 20% (FY23E) and 10% (FY24E) for EPS and a lower TP of Rs566/sh (earlier: Rs650/sh). Current multiples, even on these earnings, of 19.7x FY24E PER and 11.5x EV/EBITDA, are compelling. BUY."

About Gujarat Gas Ltd

Gujarat Gas Limited (GGL) is India's largest City Gas Distribution (CGD) Company in terms of sales volume, 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. Its current market capitalization is Rs 29074 crore at the time of writing this story.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.