Gujarat Gas - Lower Gas Cost To Revive Morbi Growth: Nirmal Bang

Nirmal Bang Report

Our optimism on Gujarat Gas Ltd. is based on our increased margin and volume estimates for FY23E/FY24E/FY25E, underpinned by potential tailwinds from:

1. signs of spot liquefied natural gas prices correcting to ~$30/metric million British thermal unit in FY24E and less than $15/mmbtu by FY25E and

2. the likely $2.1/mmbtu cut in APM gas price by Q4 FY23E based on the cap of $6.5/mmbtu suggested recently by Dr. Kirit Parikh in his gas pricing report.

The risk of an interim pullback in LNG prices is a cause for concern, but this is priced in with the stock correcting by 20% year-to-date.

Further, in H1 FY23, Gujarat Gas has shown tactical adeptness in cutting sales to the sensitive tiles sector in Morbi and improving margins - higher growth there entails pain of sourcing expensive spot LNG, which poses a risk to its margins.

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