On Friday, BofA Securities revised its price target for Gujarat Gas Ltd (GUJGA:IN), reducing it to INR 445 from the previous INR 455, while maintaining an Underperform rating on the stock. This decision follows the company's second-quarter financial year 2025 (2QFY25) earnings report, which showed earnings before interest, taxes, depreciation, and amortization (EBITDA) at INR 5.1 billion and profit after tax (PAT) at INR 3.1 billion, slightly surpassing the Bloomberg consensus.
Gujarat Gas's total sales volume for the quarter was reported at 8.75 million standard cubic meters per day (mmscmd), marking a 6% year-over-year decline. This decrease was largely attributed to a 16% drop in Industrial-Piped Natural Gas (PNG) volumes, particularly in Morbi, due to reduced ceramic exports, the less favorable economics of Industrial-PNG compared to propane, seasonal slowdowns during festive periods, and the impact of adverse monsoon weather.
However, Compressed Natural Gas (CNG) volumes saw a 12% year-over-year increase, despite a 1% quarter-over-quarter decrease. Notably, CNG volumes outside of Gujarat rose by 25%, while CNG sales within Gujarat itself grew by 12%. The company's gross margin improved to INR 10.4 per standard cubic meter, up 12% year-over-year and 20% quarter-over-quarter, benefiting from a higher share of CNG in the overall volume mix. The EBITDA margin also increased to INR 6.4 per standard cubic meter compared to INR 5.4 in the first quarter of FY25 and INR 5.8 in the fourth quarter of FY24.
In light of these results, BofA Securities has adjusted its EBITDA forecasts for FY25-26 downward by 1-2%. The price objective was also lowered to INR 445 per share, reflecting revised margin assumptions after a recent reduction in Administered Pricing Mechanism (APM) allocation for CNG. The report indicates that the firm's outlook on the stock is cautious, particularly in regard to the company's margin prospects.
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