Target: ₹836

CMP: ₹641.45

Gujarat Gas' net revenue grew by 82 per cent y-o-y and 42 per cent q-o-q to ₹5,140 crore (largely in line with our estimate). Revenue growth was led by: an overall price realisation increase by 83 per cent y-o-y and 43 per cent q-o-q to ₹4,910 crore, which was supported by 3 price hikes in CNG and 2 in PNG (Ind) totaling to ₹11.3/kg and ₹18/scm respectively, during the quarter; and despite a price increase in all segments, the company is able to maintain the total sales volume flat q-o-q (down 1 per cent y-o-y).

CNG volume grew by 39 per cent y-o-y and 11 per cent q-o-q to 2.17 mmscmd, mainly due to the higher CNG vehicle conversions. PNG (ind) volume declined by 8 per cent y-o-y and 3 per cent q-o-q to 8.4 mmscmd, and the huge price hike in PNG (ind) impacted demand. PNG (com) grew by 40 per cent y-o-y and 17 per cent q-o-q to 0.14 mmscmd, on the back of favorable fuel economics compared with LPG.

PNG (dom) grew by 5 er cent y-oy and 5 per cent q-o-q to 0.7 mmscmd. In Q3-FY22, higher spot LNG prices and a lower allocation of cheap APM gas resulted in 133 per cent y-o-y and 57 per cent q-o-q increase in gas costs per unit.

With an increasing focus on gas over other alternate fuels and relative price advantage of gas over alternate fuels, we estimate 13 per cent Gujarat Gas volume CAGR over FY21-FY24. We believe the company's volume will likely to bottom out in Q4-FY22, and the current spot LNG prices are down compared to Q3-Y22, which will help to recover margins.

We maintain our Buy rating on Gujarat Gas, with a lowered DCF-based 1-year Target Price of ₹836 (from ₹938 earlier).