Gujarat Gas Stock Surges 8 Percent on Nomura's Upgrade to Buy Rating
Gujarat Gas Ltd Shares Surge 7.9% After Nomura Upgrades Stock to 'Buy'
Gujarat Gas Ltd shares posted significant gains on Friday, rising nearly 8 percent after brokerage firm Nomura upgraded the stock to 'buy' from 'reduce', citing improving demand visibility in the key industrial segment. The stock was trading at Rs 362.05 in afternoon trade, emerging as the top gainer on the BSE Midcap index.
Nomura's upgrade to the stock was driven by its expectations of a potential demand recovery in Gujarat's Morbi ceramic cluster, where a shift from propane to natural gas is expected to support volumes. The brokerage firm has set a target price of Rs 390 per share on Gujarat Gas stock, implying an upside of around 16 percent from the previous closing levels.
The upgrade to 'buy' was attributed to the government's prioritization of LPG for households, leading to propane shortages that have constrained industrial users. According to a report cited by Nomura, the restoration of disrupted global LPG supply chains could take three to four years, as it remains unclear if it's a temporary production halt or permanent damage. In Morbi, where nearly 78 percent of ceramic manufacturers rely on propane, several players are now in discussions with Gujarat Gas to switch to natural gas.
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Nomura believes this move could significantly improve the company's growth outlook. The brokerage also noted that Morbi-based producers are planning price hikes of 15-25 percent to offset higher fuel costs, which could aid Gujarat Gas' margins over time. While Nomura has cut its FY27 EBITDA estimate by 8 percent to factor in near-term pressure from elevated spot LNG prices, it has raised FY28 EBITDA estimates by 14 percent on expectations of stronger industrial margins and volume growth.
| FY27 EBITDA Estimate | Previous Estimate | New Estimate | Change |
|---|---|---|---|
| Nomura | -8% | ||
| FY28 EBITDA Estimate | Previous Estimate | New Estimate | Change |
|---|---|---|---|
| Nomura | +14% | ||
Despite the sharp rally, Gujarat Gas stock remains down 18.7 percent over the past one year, underperforming the Sensex, which is down 0.3 percent during the same period. The company's market capitalisation stands just under Rs 25,000 crore.
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Investor Takeaway
Investors should consider upgrading their position in Gujarat Gas stock due to improving demand visibility.
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