Target: ₹450
CMP: ₹467.10
Our channel checks in Morbi suggests that Gujarat Gas (GGAS) sales volumes have nearly doubled from Q3FY23 lows of about 2mmscmd as gas prices have become cheaper to competing propane by ₹0.5-1/scm, however, industrial gross margins are likely to be at about ₹2.7/scm.
About 85 per cent of players have dual fuel (propane/GGas) capacity and they switch for cheaper option daily. Ready availability of propane (marketed by RIL, Adani, OMCs etc) is likely to limit GGAS profitable volume growth in our view). At current gas prices of ₹40.6/scm for month of May-23, we calculate industrial gross margins at ₹2.7/scm (Q3 blended gross margin at ₹14.8).
Dealer off-take of ceramic products remain low, due to high price volatility. Domestic demand remains sluggish. However, ceramic exports (FY23 at ₹15,000 crore) demand is likely to grow given falling gas and freight cost along with demand from the US, EU and GCC (Gulf countries).
We maintain our volumes and earnings for GGAS and expect high competition to keep margins/volumes in check.
Maintain ‘Hold’ with DCF based PT of ₹450 (unchanged).