Target: ₹475

CMP: ₹403.95

Over the last six months, Gujarat Gas’ share price has corrected 34 per cent, 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 vs. other fuels like Propane.

However, we now believe fundamentals are undergoing a transformative shift. 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 vs. propane. While Brent crude prices averaged about $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 per cent lower slope given the expected surge in LNG supply in H2-FY26 and beyond.

We foresee limited downside from the current level amid the scope of margin expansion, robust CNG volume growth, and an expected uptick in Morbi volumes from Q1-FY26.

Published on April 9, 2025