Gujarat Gas' Merger To Unlock Value For Gujarat State Petronet, Gujarat Gas: Motilal Oswal

Motilal Oswal Report

Gujarat Gas Ltd. has announced a scheme of amalgamation and arrangement, under which Gujarat State Petroleum Corp. Ltd., Gujarat State Petronet Ltd. and GSPC Energy Ltd. will merge with Gujarat Gas. This will be followed by the merged entity de-merging the transmission business into a new entity, GSPL Transmission Ltd.

Gujrat Gas management expects to complete the transactions by August 2025. Based on the proposed share swap, we see ~5% upside for Gujarat State Petronet.

For Gujarat Gas shareholders, we see the following key implications after the merger:

1. We estimate a combined value of the business at Rs 633/share, implying 4.7% upside on CMP.

2. EPS is estimated to be Rs 28.7, up 39% vs. our FY25 EPS estimate.

The company may not pay taxes for the next four years due to Rs 72 billion of accumulated tax losses at GSPC (based on FY24 PBT). We maintain our Buy rating on Gujarat Gas with a target price of Rs 715. While Q2 FY25 volume momentum is expected to be weak QoQ amid high spot LNG prices and a one-month shutdown in the Morbi cluster, we believe volumes should pick up in H2 FY25-FY26 amid improved competitiveness versus propane.

We keep our estimates unchanged as the scheme is expected to be completed in Aug-25.

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