Gujarat Gas is likely to see up to 20 per cent earnings boost in earnings as a result of National Green Tribunal’s order to shut all coal-operated units of ceramic companies in Morbi, Gujarat, said analysts.
Shares of Gujarat Gas continued its positive trend due to the recent order and ended up 4 percent at Rs 141 on the BSE on Monday.
Morgan Stanley said the NGT order is one of the most stringent seen in the country, with a two-month deadline to shut existing coal infrastructure and significant penalties after that.
“Gujarat Gas is only supplier of gas in the area and its F20/F21 earnings could get a 12-15 percent boost,” said Morgan Stanley, retaining ‘outperform’ rating with a target price of Rs 231.60.
Deutsche Bank expects as much as over one million metric standard cubic metres (mmscmd) of new demand from the Morbi area for Gujarat Gas if and when the NGT order is implemented.
“Every 1 mmscmd additional gas sales volume leads to a 20 percent increase in Gujarat Gas’s earnings,” said Deutsche Bank, which has a buy rating and target price of Rs 160 on the stock.
Shares of Gujarat Gas have gained 0.7 percent in the last six months compared to Indraprastha Gas and Mahanagar Gas which have gained 12.6 percent and 7 percent respectively, in the same period.
However, analysts have a bullish view on the stock. Bloomberg data shows that 22 of the 26 analysts tracking the stock have a buy rating on it while three have a hold rating and one analyst has a sell recommendation. The consensus target price of Rs 161.03 implies a potential upside of 14.2 percent from current levels. Antique Stock Broking believes that Gujarat gas has immense potential for growth.
“In addition to additional growth potential from Morbi, company has connected several new GAs (geographical areas Dahej, Panchmahal, Silvasa and Thane) over past few quarters, where the gas sale has started picking up. We accordingly estimate a gas sales CAGR of 10 per cent (FY18-FY21), leading to an earnings CAGR of 29 per cent over the period,” said Antique. Gujarat Gas had reported a 130 per cent rise in standalone net profit for the December quarter to Rs 138 crore while total income rose 34.7 per cent to Rs 2,187.3 crore.