Lower Domestic Price Improves Outlook For Indraprastha Gas, Mahanagar Gas, Gujarat Gas
The domestic gas price revision lifts a material overhang and eases margin pressure, analysts say.
The city gas distribution companies will be the key beneficiaries from the recent revision in the domestic gas pricing formula approved by the government, according to Nomura Holdings Inc.
The revision lifts a material overhang and the supportive policy framework considerably eases margin pressure and improves visibility on profitability for the CGD, the research firm said in a note on Monday.
The cut in prices also eases the burden on consumers, improves cost advantage versus liquid fuels and provides an impetus for CNG vehicle conversions, driving higher volumes for the CGDs, according to the note.
Nomura Top Picks
Nomura maintains a 'buy' on Indraprastha Gas Ltd. and Mahanagar Gas Ltd.
The brokerage maintains a 'neutral' rating on Gail (India) Ltd. with a target price of Rs 100, implying an downside return potential at 5.66%
It reiterates a 'reduce' ratings on Oil and Natural Gas Corp. with a target price of Rs 120 and Oil India Ltd. with a target price of Rs 175.
Jefferies Top Picks
Indraprastha Gas
Indraprastha Gas emerges as the biggest beneficiaries of the cut in APM gas costs, the brokerage said in a note.
The company has lowered CNG/PNG prices by Rs 6/kg and Rs 5/ kg, passing on partial benefit from the APM price cap.
The brokerage maintains a 'buy' rating, with a revised target price of Rs 540, implying an upside return potential of 15.97%
Mahanagar Gas
The company has lowered CNG/PNG prices by Rs 8/kg and Rs 5/kg, passing on partial benefit from the APM price cap.
The brokerage maintains a 'hold' rating, with a revised target price of Rs 1,100, implying an upside return potential of 10.97%
Gujarat Gas Ltd.
Propane price has weakened sharply over last month possibly, weighing on the company's Morbi volume, the note said.
Gujarat Gas has lowered CNG/PNG prices by Rs 6.25/kg and Rs 3.5/kg, passing on partial benefit from the APM price cap.
Jefferies has revised the target price at Rs 425, implying a downside return potential of 7.86%, and maintains 'underperform' rating.
GAIL (India) Ltd.
The LPG segment profitability in FY24E receives Rs 11-billion boost from lower feedstock cost. However, LPG price has fallen 22% since March offsetting the benefit, the note said.
The brokerage has maintained a 'hold' with an unchanged target price of Rs 110, implying an upside return potential of 3.77%.
