Brokerage firm Nomura expects shares of Gujarat Gas Ltd to re-rate following the company's receipt of approval from the Ministry of Corporate Affairs (MCA) for its proposed merger with GSPC and GSPL. According to reports from CNBC TV18, Nomura maintained its 'buy' recommendation on the stock with a price target of ₹390, implying an upside potential of 7.5% from current levels. The brokerage highlighted several positives from this upcoming merger that would serve as a re-rating trigger for the stock.
As reported by CNBC TV18, the merger creates several strategic advantages for the combined entity. The scheme of amalgamation and subsequent demerger of the transmission business makes good strategic sense along with immediate gains for the merged entity. The brokerage noted that the merger eliminates cross holdings, creating a simpler group structure, and integrates the gas value chain to create scale and efficiency. Additionally, the valuation discount due to conglomerate structure and cross holding goes away, providing immediate value enhancement.
According to Nomura's analysis reported by CNBC TV18, the merged entity will benefit significantly from accumulated tax losses of ₹7,200 crore on GSPC's books, which can be used to offset future tax liabilities. The brokerage believes the merger is EPS-accretive on an immediate basis. Additionally, earnings for the CGD entity may increase due to reduction in marketing margins currently being accrued to GSPC.
As reported by CNBC TV18, of the 31 analysts who have coverage on the stock, 14 have a 'buy' rating, nine have a 'hold' rating, and eight have a 'sell' rating. Gujarat Gas shares are trading 0.4% higher on Monday at ₹364.25. The stock has risen 8.5% in the past month but has declined 57.7% this year, so far. The current price of ₹364.25 is significantly below the brokerage's target price of ₹390.
