According to Nomura's latest research report, the brokerage has retained its 'Buy' rating on Gujarat Energy Limited (GEL) with a target price of ₹379, down marginally from the earlier target of ₹382. The brokerage expects significant value in the stock at current levels despite expectations of normalisation in Morbi volumes from 2QFY27. Nomura believes the stock trades at attractive valuations of 1.2x FY28F P/B and 7.4x FY28F EV/EBITDA, positioning it as one of their top picks in India's gas utilities space.
As reported by Nomura, GEL delivered a robust Q1FY27 performance with EBITDA of ₹12.9 billion, up 66% quarter-on-quarter and 68% year-on-year, beating Nomura's estimate by 61%. The strong performance was largely driven by the gas trading business, with CGD volumes coming in slightly below elevated expectations at 12.3 million standard cubic metres per day (mmscmd), up 39% quarter-on-quarter. CNG volumes grew 13% year-on-year, 3% ahead of Nomura's estimate, while industrial PNG volumes grew 64% year-on-year, supported by a one-time opportunity in the Morbi region amid propane unavailability.
According to Nomura's analysis, Morbi volumes are expected to normalise from 2QFY27 to around 1.8-2 mmscmd from current levels, following higher propane availability and diversification of supply sources beyond the Middle East. Even at the lower end of management's margin guidance of ₹5.5/scm, the brokerage expects the CGD business to deliver around 6% EBITDA CAGR over FY26-29F. Nomura has lowered its volume estimates to 10.4/9.9 mmscmd from 12.1/10.7 mmscmd for FY27/FY28E while maintaining CGD EBITDA per standard cubic meter guidance of ₹5.5-6.5 per scm.
As reported by Nomura, GEL maintains its ₹11-12 billion EBIT guidance for the Trading business with margins of 4-5%, supported by an asset-light and cash-generative gas trading business. The brokerage expects the CNG business to continue growing at a double-digit percentage rate for at least the next few years, while government support for domestic PNG could support volume growth going forward. The company's increasing tie-up of long-term LNG contracts should make gas sourcing increasingly reliable and cheaper in the long term, providing earnings stability and margin upside in the CGD business.
According to Nomura's research, GEL demonstrates strong financial fundamentals with net cash of more than ₹70 billion, equivalent to ₹77 per share, while annual free cash flow is estimated at ₹17-18 billion. This implies an FCF yield of around 7% and a dividend yield of around 3.3%. Nomura values the company on a Sum-of-the-Parts (SOTP) basis, assigning 10x EV/EBITDA to the CGD business and 4x to Gas Trading/E&P/Power. The brokerage cut its FY27F/FY28F PAT estimates by 3%/9% as it fine-tuned volume and margin assumptions, arriving at the revised target price of ₹379.
