Gujarat Gas falls after Jefferies downgrades the stock and lowers the target price

Gujarat Gas fell more than 3% in morning trading on January 13 after Jefferies downgraded the company to "underperform" from buy and reduced the target price from Rs 570 to Rs 400 per share, a drop of more than 12% from the current market price.

"Due to decreased sales and margin compression, we have reduced our volume expectations by 17%/15% for FY24-25E and our EBITDA estimates by 15% for FY24/25E. We estimate the stock to provide a 5% EPS CAGR over FY22-25E, but the valuation at 22x future PE does not, in our opinion, appropriately account for the earnings deceleration "According to the brokerage firm.

Since October, Gujarat Gas has reduced the price of a standard cubic metre (scm) in Morbi by Rs 11.5 to Rs 46.5. In response, Indian Oil Corporation has decreased the price of propane in Morbi to Rs 46.1, which is almost Rs 3 less than Gujarat Gas' current pricing.

Gujarat Gas was trading at Rs 450.90 on the BSE at 10.16 a.m., down Rs 15.90, or 3.41 percent.

Because downstream propylene and polypropylene demand is sluggish, Jefferies predicts propane prices will continue low in H1 CY23. Global LNG supplies are expected to be tight between 2023 and 2024, and China's LNG consumption will climb as the country opens up. These variables may keep LNG prices elevated in comparison to historical levels throughout FY24-25E. This could result in further volume migrating to propane in the short term, aggravating Gujarat Gas' structural drag.

Gujarat Gas is a city gas distribution business that provides compressed natural gas (CNG) and piped natural gas (PNG) to industrial and residential clients in Gujarat as well as some places beyond the state. Gujarat Gas' volume mix is heavily oriented toward industrial PNG, which accounts for over 70% of its total volume.

Gujarat Gas is promoted by GSPL, which owns around 44 percent of the company, while the Gujarat government directly controls a 6 percent stake.