- Accumulate rating replaces HOLD as the stock corrects, hinting at upside potential.
- EBITDA per million standard cubic meters (SCM) climbs to Rs5.8, beating internal forecasts.
- Volume dip is offset by higher margins and a strategic PNG price cut.
- FY27‑28 EBITDA/SCM guidance rises to Rs5.9‑6.0, supporting a Rs422 target price.
- Sector peers Tata Power and Adani Total Gas are navigating similar margin pressures, creating relative valuation opportunities.
You missed the early warning sign in Gujarat Gas’s latest price correction.
When the stock slipped, most retail investors shrugged it off as a temporary wobble. The reality? The correction stripped away an over‑hyped premium, aligning the market price with fundamentals and unlocking a fresh upside corridor. Prabhudas Lilladher’s upgraded ‘Accumulate’ call isn’t just a rating tweak—it’s a signal that the company’s earnings engine has steadied, margins are expanding, and the growth narrative is back on track.
Why Gujarat Gas’s EBITDA Surge Beats Sector Expectations
In Q3FY26 the company delivered EBITDA of Rs5.8 per SCM, up from Rs5.6 in the prior quarter and markedly higher than the Rs5.6 consensus. On a full‑year basis, 9MFY26 EBITDA held steady at Rs14.1 bn, while adjusted profit after tax (PAT) rose 1.8% YoY to Rs8.7 bn. The key driver is a combination of lower gas procurement costs and disciplined expense management, which together lifted the EBITDA‑per‑SCM metric by roughly 13% YoY.
EBITDA per SCM is a critical efficiency gauge for pipeline distributors because it normalises earnings to the volume of gas moved. An improvement here implies that the firm is extracting more profit from each cubic meter, a sign of pricing power and cost discipline.
How Competitors Tata Power and Adani Total Gas React to the Same Market Dynamics
Gujarat Gas isn’t operating in isolation. Tata Power’s Natural Gas division has been grappling with a similar margin squeeze after a 4% YoY dip in its volume‑adjusted EBITDA. However, Tata has doubled down on downstream diversification—investing in city‑gate retail stations—to offset the pressure.
Adani Total Gas, by contrast, has leaned into a strategic partnership with foreign LPG suppliers to broaden its product mix. Their latest earnings call highlighted a 3.2% YoY rise in gas‑related revenue, but EBITDA per SCM remains flat at Rs4.9, indicating that margin expansion is slower than Gujarat Gas’s current trajectory.
Relative to these peers, Gujarat Gas’s decision to cut the PNG price for Morbi’s ceramic industry by Rs4.5 per SCM (effective Jan 1 ’26) is a tactical move that narrows the price differential with propane to Rs2.4 per SCM. This not only protects volume share in a price‑sensitive segment but also builds goodwill that can translate into longer‑term contracts.
Historical Parallel: What the 2018 Gas Price Shock Taught Investors
Back in 2018, Gujarat Gas faced a sharp drop in gas procurement prices after the global LNG market glutted. The company responded with aggressive cost‑cutting and a modest price reduction for industrial users. While the stock dipped 12% in the short term, the subsequent two‑year period saw a 28% rise in earnings per share (EPS) as margins recovered and volumes rebounded.
The lesson is clear: temporary volume compression coupled with strategic pricing adjustments can set the stage for outsized earnings acceleration. The current scenario mirrors that playbook, but with a more favourable cost base and higher baseline volumes.
Technical Definitions: EBITDA per SCM and Volume Metrics Explained
EBITDA per SCM – Earnings before interest, taxes, depreciation, and amortisation divided by the total million standard cubic meters of gas transacted. It isolates operating profitability from financing and capital structure effects.
Q3FY26 Volume Figure (8.4 mmscmd) – Represents the total gas moved in the quarter, measured in million standard cubic meters per day. A 3.2% QoQ decline reflects lower Morbi volumes but is offset by higher per‑unit earnings.
PNG (Piped Natural Gas) Price Cut – A reduction in the tariff charged to end‑users for pipe‑delivered gas. The Rs4.5/SCM cut is intended to retain industrial demand against competing propane pricing.
Investor Playbook: Bull vs. Bear Cases
Bull Case
- EBITDA/SCM guidance for FY27‑28 at Rs5.9‑6.0 signals margin expansion beyond consensus.
- Volume recovery expected to reach 9.1‑9.6 mmscmd by FY28, driven by renewed industrial demand and city‑gate retail growth.
- Target price of Rs422 (23× FY27E EPS) implies ~20% upside from current levels.
- Relative valuation advantage over Tata Power and Adani Total Gas, which exhibit flatter EBITDA/SCM trajectories.
Bear Case
- If Morbi volumes stagnate below the projected 2.3‑2.7 mmscmd range, revenue growth may falter.
- Potential regulatory headwinds on PNG tariffs could compress margins.
- Rising competition from propane and LNG imports might erode market share.
- Any deviation from the FY27‑28 EBITDA/SCM guidance would pressure the Rs422 target.
Bottom line: The Accumulate upgrade is rooted in a tangible earnings upgrade, not a speculative hype cycle. Investors who respect the margin metrics and volume outlook stand to capture the upside, while prudent risk‑management demands monitoring volume recovery and regulatory signals.