Gujarat Gas Hikes Industrial Gas Prices For Morbi Customers: BUY/SELL This PSU Oil & Gas Stock?

Leading natural gas producer in India and backed by the government, Gujarat Gas in a bold move hiked the price of industrial gas by Rs 2 per standard cubic metre (scm) to Rs 44.68 for Morbi customers. The new prices will come into effect from July 4, 2024. The announcement was made on July 3.

The latest price revision comes after Gujarat Gas increased its price by Rs 2.50 to Rs 43.33 per sqm.

This was due to a surge in spot liquefied natural gas (LNG) prices which have continued on the upward trend.

Notably, the price hike is also at a time when crude oil prices are experiencing volatility.

On Wednesday, Rahul Kalantri, VP of Commodities, Mehta Equities said, Crude oil prices experienced significant volatility and declined from their highs due to easing fears about Hurricane Beryl in the United States. According to the latest survey, Beryl is not expected to shut down a major amount of offshore oil production in the U.S., with only minimal shutdowns anticipated. Hurricane Beryl is a dangerous Category 4 hurricane tearing through the Caribbean Sea. Crude oil prices also slipped due to the record weakness of the Japanese yen and demand concerns from Japan and China. However, better-than-expected U.S. JOLTS job openings data provided support for crude oil prices at lower levels."

On the recent buzz of natural gas commodity to be included in GST, Motilal Oswal in its report said that Gujarat Gas is the only clear near-term beneficiary, while the impact for other oil and gas players will be staggered over the medium to long term.

As per Motilal, natural gas attracts 5% value-added tax in Gujarat and competes with propane, which, besides being cheaper (and boasting 20-25% higher calorific value), attracts 18% GST (on which businesses can claim input tax credit). The inclusion of natural gas under GST increases its relative attractiveness vs. propane and could be an upside risk to our estimated 10-12% volume growth for FY25-26. The impact of natural gas inclusion under GST is marginal for most of the other oil and gas players in the short term.

On Gujarat Gas, Motilal's note said, "We expect volumes to jump to ~38.5mmscmd in FY26, as it is a
beneficiary of a) the upcoming LNG terminals in Gujarat, b) improved demand owing to the focus on reducing industrial pollution - Gujarat has five geographical areas identified as severely/critically polluted."

Antique Stock Broking has recommended BUY on Gujarat Gas with a target price of Rs 690.

After the announcement, Gujarat Gas share price traded at Rs 637.55 apiece, down by 1.98% on BSE with a market cap of Rs 43,888.31 crore. The stock's 52-week high and low are at Rs 663.05 and Rs 397.20 apiece respectively.

Gujarat Gas Limited (GGL) is India's largest City Gas Distribution (CGD) Company in terms of sales volume operating in 44 districts in 6 states of Gujarat, Maharashtra, Rajasthan, Haryana, Punjab & Madhya Pradesh and 1 Union territory of Dadra & Nagar Haveli.

GGL continues to hold the leadership position in CGD industry in terms of size and scale of operation. The Company has a successful track record of providing uninterrupted services for over 3 decades through a network of more than 39,300 kms. of Natural Gas pipeline, distributing approx. 9.7 mmscmd of Natural Gas. The Company operates 808 CNG stations and has connected more than 21.15 lakh households, over 15,200 commercial customers and more than 4,390 industrial customers.