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ICICI Securities Report
Gujarat Gas Ltd. has taken a second price cut in four months, reducing the base price in industrial retail segment to Rs 44-46/standard cubic metre for Morbi and other regions.
The sharply lower spot liquefied natural gas prices over February-March 2023, coupled with the potential softening in propane prices from April 2023 (communication from LPG sellers indicates a 14-15% reduction in propane prices from April-23 at Morbi) have likely driven Gujarat Gas' price-cut decision.
Gujarat Gas seems to be following a strategy of maximising volumes by sacrificing margins over H1 FY24, with the softer spot LNG prices and softer crude prices both helping reduce sourcing costs.
However, for H2 FY24, if commodity prices see strength due to Europe gas storage top-up and Chinese demand recovery, our sense is that Gujatat Gas will look to focus on margins and volume growth may taper off a bit.
Irrespective of the split between volumes/margins, our FY24E earnings per share estimate of Rs 23/share (revised with this note) seems to face limited downside risk. Further, FY25E can see stronger growth with additional LNG supplies, some domestic supply boost and normalisation of LPG prices to provide better pricing power for Gujarat Gas.
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