Buy Gujarat Gas; target of Rs 1000: ICICI Direct
ICICI Direct’s research report on Gujarat Gas
Gujarat Gas (GG) is one of India’s largest player in the industrial gas segment and city gas distribution (CGD) with a dominant presence in Gujarat. It caters to the gas demand of ~3000 industrial consumers, ~5 lakh CNG vehicles and ~12 lakh households in Gujarat. Total volumes in FY17 were at 5.4 mmscmd with the industrial and retail segment contributing ~68% of total volumes. Gujarat Gas has been rapidly expanding its reach in Gujarat by way of securing licenses to expand its CGD network across five new areas, making it to 19 districts of Gujarat, Dadra and Nagar Haveli, Thane and Palghar in Maharashtra.
Efforts towards higher penetration to provide volume growth The current rising environmental concerns and the government’s aim to switch to gas based economy put companies like Gujarat gas in a sweet spot. With its expanding presence across several districts in Gujarat and relatively low gas prices, Gujarat Gas is set to benefit, going ahead, from volume growth in CNG, and industrial retail segment. We believe the company’s strong CGD network offers good demand potential due to lower CNG, residential PNG penetration and increased usage of natural gas for industrial volumes. We now value Gujarat Gas at 25x FY19E EPS of Rs 40 on the back of better visibility on earnings growth. We have a BUY rating with a target price of Rs 1000.
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