Morbi volatility weighs, but brokerages see long-term upside in Gujarat Gas

Morbi volatility weighs on near-term volumes, but analysts flag LNG prices, CNG expansion and GSPC restructuring as key long-term drivers

Brokerages remain largely constructive on Gujarat Gas (GUJGA), citing strong long-term growth prospects despite near-term volatility in industrial volumes at Morbi, following the company’s Q3FY26 results.

 

For the quarter, profit after tax (PAT) rose 19.8 per cent year-on-year (Y-o-Y) to ₹266 crore, compared with ₹222 crore in the year-ago period. Sequentially, however, PAT declined 5.3 per cent from ₹281 crore in Q2FY26. The company's revenue fell 10.8 per cent Y-o-Y and 2.9 per cent quarter-on-quarter (Q-o-Q) to ₹3,865 crore. Earnings before interest, tax, depreciation, and amortisation (Ebitda) increased 14.4 per cent Y-o-Y to ₹502 crore, though it declined 3.5 per cent sequentially.

 

 

Total gas volumes declined to 8.37 mmscmd in Q3FY26 from 8.65 mmscmd in Q2FY26 and 9.47 mmscmd in Q3FY25, largely due to weakness in industrial demand from Morbi.

 

Following the results, Elara Capital upgraded the stock to Accumulate, factoring in a recovery in Morbi volumes in Q4 and the likelihood of a moderation in international LNG prices. JM Financial maintained its Buy rating, citing improving competitiveness versus propane, expansion in CNG, and potential value accretion from the GSPC group restructuring. Motilal Oswal Financial Services (MOFSL) also reiterated its Buy call, highlighting long-term industrial volume growth, rural expansion, and the proposed GSPC merger as key catalysts.

 

Amid this, shares of Gujarat Gas were trading 1.6 per cent higher at ₹405.70 on the NSE at 10:57 AM on Thursday, January 22.

Meanwhile, here’s what brokerages said on Gujarat Gas:

JM Financial: Buy | Target price ₹535

JM Financial maintained its Buy rating with an unchanged target price of ₹535 per share. The brokerage expects Gujarat Gas’s competitiveness to improve over the medium-to-long term due to a likely moderation in spot LNG prices, supported by a sharp increase in global LNG supply.

 

“We maintain Buy as we expect volume growth momentum to sustain over the medium-to-long term, led by higher volumes and margins in the industrial segment, driven by improving competitiveness versus propane and expansion of CNG in new geographical areas,” said JM Financial in its report.

 

The brokerage also estimates potential value accretion of around ₹4,000 crore, or about 13 per cent, from the GSPC group restructuring, expected to be completed by February 2026, with listing likely by April–May 2026. This includes a ₹1,800 crore reduction in tax outgo due to carried-forward tax losses at GSPC and ₹2,000–2,500 crore of value accretion from higher valuation linked to GSPC’s gas trading Ebitda.

 

Key risks, according to the brokerage, include sustained high spot LNG prices, a sharp decline in propane prices, and delays in the group merger.

Elara Capital: Upgraded to Accumulate | Target price ₹449

Elara Capital upgraded Gujarat Gas to Accumulate from Reduce and raised its target price to ₹449 from ₹409 earlier. The brokerage believes that any meaningful re-rating would hinge on a sharp decline in international LNG prices relative to propane, following the commissioning of large LNG export capacities in the US and Qatar over the next two years.

 

On expectations of stronger Morbi volumes in Q4 and management’s indication of a post-winter decline in LNG prices, Elara raised its FY26E, FY27E, and FY28E Ebitda estimates by 7 per cent, 4 per cent, and 5 per cent, respectively, and rolled forward its valuation to FY28E.

 

“Consequently, we raise our target price to ₹449 and revise the rating to Accumulate,” said Elara. Its DCF-based valuation assumes a 10.1 per cent WACC, Ebitda of ₹5.6 per scm, FY25–30E volume CAGR of 6.8 per cent, and long-term demand growth of 1 per cent.

 

Elara added that CNG is expected to emerge as an earnings stabiliser over time, while industrial PNG will remain the swing factor. In the near term, however, Morbi concentration continues to be the biggest driver of earnings volatility.

Motilal Oswal: Buy | Target price ₹485

Motilal Oswal Financial Services reiterated its Buy rating with a target price of ₹485, citing strong long-term volume growth prospects driven by the addition of new industrial units and expansion of existing ones.

 

The brokerage noted that Gujarat Gas is investing aggressively in infrastructure to drive industrial gas adoption in Ahmedabad rural, Thane rural, and newly acquired areas in Rajasthan.

 

MOFSL highlighted that the stock is currently trading at 23.2 times one-year forward earnings, below its long-term average of 24.9 times. While near-term performance may remain muted due to volume uncertainty, the proposed merger of Gujarat Gas, GUJS, and GSPC remains a key catalyst.

 

The brokerage expects final approval for the merger by February 2026, having already received shareholder approval and completed filings with the Ministry of Corporate Affairs.

 

“We reiterate our Buy rating with a target price of ₹485, valuing the stock at 24 times December 2027E earnings,” said MOFSL.

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(Disclaimer: The views and investment tips expressed by the brokerages in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.)