Buy Gujarat Energy: target of Rs 345: ICICI Securities

Moneycontrol • 2 days ago

Original source

Key Investment Pillars

  • CGD volumes growth: GEL saw Q2FY27 CGD volumes rise 24% YoY to 10.7mmscmd, led by industrial and CNG demand, with CNG volumes growing 11% YoY.
  • Morbi volume normalization: Morbi volumes fell from ~5.6mmscmd in Q1 to 3.9mmscmd in Q2, but higher propane prices could drive a recovery over H2FY27.
  • LNG sourcing strategy: The board approved long-term HH-linked LNG contracts of 0.8mtpa to win back Morbi customers competing against propane.
  • Valuations: Valuations are unchallenging at ~6.1x FY28E PER and 4.2x EV/EBITDA, with a target price of INR 345/sh.

Thesis Validation Checklist

  • Volume growth: Watch for sustained growth in domestic/CNG segments and recovery in Morbi volumes.
  • LNG costs: Monitor the impact of LNG costs on GEL's margins and competitiveness.
  • Propane prices: Track propane prices and their effect on Morbi volumes and GEL's overall performance.
  • CGD expansion: Monitor the progress of GEL's CGD expansion plans and their impact on volumes and profitability.