Buy Gujarat Gas, Maintains Motilal Oswal, Sees Weaker Crude, Lower Slope As The Twin Emerging Tailwinds

Gujarat Gas’ long-term volume growth prospects remain robust, with the addition of new industrial units and expansion of existing units. It is aggressively investing in infrastructure to push industrial gas adoption in Thane rural, Ahmedabad rural, and the newly acquired areas in Rajasthan.

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Motilal Oswal Report

Valuation de-rating largely over, in our opinion: Over the last six months, Gujarat Gas Ltd.’s share price has corrected 34%, with the stock now trading at 21x FY27E P/E. Weakness in the stock price was driven by-

higher spot LNG prices leading to elevated raw material costs and
subdued industrial and commercial PNG volumes amid weak ceramic exports and weak competitiveness versus other fuels like Propane.

However, we now believe fundamentals are undergoing a transformative shift:

Weaker crude and lower slope – the twin emerging tailwinds: A weak crude price outlook together with a lower pricing slope for natural gas (given the impending LNG glut) will drive down gas costs and increase competitiveness versus propane. While Brent crude prices averaged ~$75.8/bbl in Q4 FY25, we forecast Brent to average $65/bbl in FY26/FY27 (earlier: $70/bbl).

We estimate every $10/bbl decline in Brent prices reduces the landed cost of natural gas by $2.3/mmbtu. Further, according to our discussions with the listed and unlisted India CGD companies, new long-term gas contracts are already being signed for a 1.0-1.3% lower slope given the expected surge in LNG supply in H2 FY26 and beyond.

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Motilal Oswal Gujarat Gas Update.pdf

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Also Read: India Strategy And Q4 FY25 Results Preview: Trump’ed And Tariff’ied’ — Read Motilal Oswal's Analysis

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