- Overall gas volumes fell 12% YoY, yet CNG and D‑PNG segments surged 11%–12%.
- EBITDA per cm slipped 7% below estimates, mainly from flat gas costs and unchanged opex.
- Current valuation: 21.4× FY27E P/E and 12.8× EV/EBITDA – modestly cheaper than most Indian gas peers.
- Motilal Oswal maintains a BUY rating with a target of INR 485, implying 24× Dec‑27E EPS.
- India’s clean‑fuel push and upcoming pipeline expansions could reignite growth.
You missed the warning sign in Gujarat Gas’s latest numbers. Here’s why it matters.
Why Gujarat Gas’s Volume Decline Mirrors a Sector‑Wide Shift
Gujarat Gas (GUJGA) posted 8.4 million metric standard cubic meters per day (mmscmd) in Q3, a 12% YoY drop. The dip is largely driven by a 27% slump in its I&C‑PNG (industrial & commercial piped natural gas) segment, while its CNG (compressed natural gas) and D‑PNG (domestic piped natural gas) businesses posted healthy 11%–12% growth.
The underlying story is a macro‑level transition: heavy‑industry users are exploring cheaper alternatives such as coal‑based fuels or electricity, whereas residential and transport customers are shifting toward cleaner CNG solutions spurred by government incentives. This divergence is echoed across India’s gas sector, where total delivered gas volumes have plateaued but CNG stations have multiplied by 18% YoY.
How Competitors Tata Power and Adani Gas Are Positioning Themselves
Peer analysis sharpens the investment lens. Tata Power’s gas subsidiary has doubled its CNG network in the past year, capitalising on the same transport‑fuel demand that buoyed Gujarat Gas’s CNG growth. Meanwhile, Adani Gas, the nation’s largest gas distributor, is aggressively expanding its pipeline footprint in Maharashtra and Gujarat, targeting an additional 2 mmscmd of residential supply by FY27.
Both peers report higher EBITDA margins (8%–9%) than Gujarat Gas’s current 5.8 INR per cm, reflecting tighter cost control and better gas‑cost pass‑through. However, Adani’s EV/EBITDA sits near 14×, slightly pricier than Gujarat Gas’s 12.8×, suggesting a valuation gap that could reward a disciplined re‑rating.
Historical Patterns: What Past Volume Slumps Taught Investors
Looking back, Gujarat Gas experienced a similar volume contraction in FY22 when regulatory tariffs were revised. The company responded by accelerating its CNG rollout and renegotiating long‑term gas purchase agreements (GPAs). Within twelve months, total revenues rebounded by 9% and EBITDA margin improved from 13% to 15%.
The lesson is clear: volume dips in the regulated PNG business often precede strategic pivots toward higher‑margin, growth‑oriented segments. Investors who stayed the course after FY22 saw a 45% share‑price appreciation over the next two years.
Decoding the Valuation Multiples: P/E, EV/EBITDA, and What They Reveal
P/E (Price‑to‑Earnings) Ratio compares a stock’s market price to its earnings per share. Gujarat Gas trades at 21.4× FY27E P/E, modestly above the Indian energy average of 18×, but below the sector’s top tier (e.g., Adani Gas at ~25×). This suggests modest pricing optimism, leaving headroom if earnings accelerate.
EV/EBITDA (Enterprise Value‑to‑EBITDA) gauges total company value relative to operating cash flow. At 12.8× FY27E, Gujarat Gas is cheaper than the sector median of ~14×, indicating that the market may be undervaluing its underlying cash‑generating capacity.
Motilal Oswal’s target price of INR 485 translates to a forward EV/EBITDA of 12× and a forward P/E of 20×, implying a 12%‑15% upside from current levels, contingent on volume recovery and margin improvement.
Investor Playbook: Bull vs. Bear Scenarios for Gujarat Gas
Bull Case
- Continued CNG/D‑PNG growth outpaces I&C‑PNG decline, lifting overall revenue mix toward higher‑margin products.
- Successful renegotiation of GPAs reduces gas‑cost exposure, improving EBITDA per cm.
- Pipeline expansion projects (e.g., Gujarat‑Maharashtra link) unlock new residential customers, adding >0.5 mmscmd by FY28.
- Valuation multiple contraction: market re‑prices EV/EBITDA to 10×, delivering ~20% upside.
Bear Case
- Industrial customers accelerate migration to cheaper fuels, pushing I&C‑PNG below 60% of the volume mix.
- Regulatory tariff freezes compress margins, keeping EBITDA per cm flat or lower.
- Competitor pipeline projects erode Gujarat Gas’s geographic moat, leading to market‑share loss.
- Valuation expands to sector‑average multiples, capping upside and potentially pulling the stock toward a 10% downside.
Given the current valuation discount, the upside potential outweighs the near‑term headwinds. Prudent investors might consider a phased entry, scaling up as CNG and D‑PNG volumes demonstrate sustained double‑digit growth.