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IGL, Gujarat Gas shares gain as Jefferies starts coverage with buy rating
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
Gas distribution companies such as Indraprastha Gas, Gujarat Gas and Mahanagar Gas have gained a lot of traction ahead of the 10th round of city gas distribution bids starting next month.
Shares of gas distribution companies such as Indraprastha Gas (IGL), Gujarat Gas and Mahanagar Gas gained a lot of traction on Monday after global brokerage Jefferies initiated coverage on these stocks.
The brokerage has a ‘buy’ rating on Indraprastha Gas and Gujarat Gas, and an underperform rating for Mahanagar Gas .
Shares of Indraprastha Gas rose 1.2 percent to Rs 268.50, Gujarat Gas gained 2.4 percent to Rs 634.95 while Mahanagar Gas was down 2.1 percent to Rs 840 on the Bombay Stock Exchange.
Indraprastha Gas, according to the brokerage, has witnessed double volume growth over the last few years and Jefferies expects the trend to continue and expect Indraprastha Gas to clock volume growth at CAGR of 13.5 percent over FY18-23E. According to the brokerage, the company has also been able to maintain EBITDA margins, implying it has higher pricing power and that the company has been able to pass on any hike in input costs. Jefferies has a target price of Rs 340 for Indraprastha Gas.
For Gujarat Gas, Jefferies has set a price target of Rs 830, implying about 31 percent upside from the current levels. Industrial segment contributed 70 percent to the company’s total volumes, which is positive as it leads to lower infrastructure constraints, said the brokerage in a report.
With regards to Mahanagar Gas stock, the brokerage sees a 15 percent downside from current levels and has set a target price at Rs 730.
Jefferies expect volume growth to remain muted for next 6-7 percent. Further expansion in margins can be difficult unless there is a strong tailwind for the Company.
The gas stocks were also in focus ahead of the 10th round of city gas distribution bids starting next month.
An official statement said that 24 percent of India’s population and 18 percent of its area will be covered in this round.
“The e-bidding process was initiated on November 8, 2018. Pre-bid conference is scheduled on December 6, 2018. Bids can be submitted by February 5, 2019. Technical bids would be opened during February 7 to February 9, 2019. The Letter of Intents are planned to be issued by end-February 2019,” the statement said.
The gas transportation regulator Petroleum and Natural Gas Regulatory Board (PNGRB) aims to award contracts for the new round by end of February 2019 and the government has also added 50 additional geographical areas for bidding as there is a clear policy push for gas based fuels.
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