Trade Nivesh is bearish on Gujarat Gas has recommended sell rating on the stock with a target price of Rs 153 in its research report dated May 07, 2019.
Gujarat Gas volume of 585 MMSCM was below our estimate of 650 MMSCM. The ` 19.1 bn in revenue was below our estimate, due to a volume miss. The gross spreads fell 6% QoQ and grew 23% YoY. In the past, the company’s spread grew to a high level, and reverted to lower levels in the following quarter, and that happened this quarter, as well. We will closely watch this trend in the coming quarters. Given the management’s recent strategy of focusing on volumes, we believe operating spreads of ` 4.2 per SCM should sustain. Volumes are likely to rise, as distribution reach expands, but will take some time. Volume de-growth is a concern, due to slower industrial activity.
Outlook
The recent rally in the stock price lead us to believe that high single digit volume growth, with a stable spreads scenario, is already factored in the price. Downgrade to Sell, with a target price of ` 153.
Gujarat Gas volume of 585 MMSCM was below our estimate of 650 MMSCM. The ` 19.1 bn in revenue was below our estimate, due to a volume miss. The gross spreads fell 6% QoQ and grew 23% YoY. In the past, the company’s spread grew to a high level, and reverted to lower levels in the following quarter, and that happened this quarter, as well. We will closely watch this trend in the coming quarters. Given the management’s recent strategy of focusing on volumes, we believe operating spreads of ` 4.2 per SCM should sustain. Volumes are likely to rise, as distribution reach expands, but will take some time. Volume de-growth is a concern, due to slower industrial activity.
Outlook
The recent rally in the stock price lead us to believe that high single digit volume growth, with a stable spreads scenario, is already factored in the price. Downgrade to Sell, with a target price of ` 153.
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