Why Gujarat Gas Shares Outperform Their Peers This Month

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Gujarat Gas stock prices, which have more than doubled since the March lows, continued to trade near new highs seen recently. The company may be the largest beneficiary among city gas distribution companies (CGDs) if gas sales fall under the goods and services tax regime. This is due to its strong exposure to institutional sales. The firm has also seen sales rebound, with gas consumption accelerating after the lockdowns were eased, as shown in third-quarter results released by the company recently.

In Q3 FY21, Gujarat Gas reported EBITDA (earnings before interest, taxes, depreciation and amortization) and net earnings at 610 crore (up 66% yoy) and 390 crore (up 99.6% year-on-year) ahead of our estimates and on the street, on higher-than-expected sales volume and lower gas costs, “said analysts at Antique Stock Broking.

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The company’s gas sales volumes increased 23% year-over-year to 11.4 mmscmd (million standard cubic meters per day). These are expected to rise further in Q4 FY21 due to the promising January sales growth seen by the company, analysts said. While industrial volume (80% of sales volumes) jumped 27% year-over-year, compressed natural gas sales also grew 2% year-on-year. On a sequential basis, they increased by 16% and 20% respectively.

The increase in sales volumes from the Morbi industrial hub in Gujarat continues to boost the company’s sales volumes. The need for cleaner, cheaper fuels will further drive sales expansion to more of these industry clusters.

The company added 83 new CNG stations in the current fiscal year for a total of 484. It plans to add 150 CNG stations every year, 3 times the previous level, of which 50% and more will be directly controlled and 75% in new geographies say, analysts. It can continue to generate phenomenal volumes.

The company currently continues to sell a total gas volume of over 11.50 mmscrnd against average sales of 9.44 mmscrnd for fiscal year 20.

Over the past five years, the company has experienced volume growth of 11% per year, and analysts at Motilal Oswal Financial Services also forecast the same volume growth over the next two years.

If gas is included in the GST, the company would benefit from an increase in the offtake volume, as industrial consumers could benefit from input tax credits, thereby reducing the cost of their gas raw material. Gujarat Gas will also be able to benefit from the tax credit on operating expenses and investments.

The stock is currently trading at 24.6 times the expected one-year earnings estimates.

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