Stronger Propane Prices Drive Another Morbi Price Hike By Gujarat Gas: ICICI Securities
Propane has become a key alternative for gas in the region of Morbi for Gujarat Gas.
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ICICI Securities Report
Gujarat Gas Ltd. has hiked industrial gas prices at Morbi by Rs 2.5/standard cubic metre, the second hike in Q2, post a Rs 2/scm hike taken in Aug-23.
The decision has been driven by an improvement in propane prices in last two-three months. Prices have steadily improved since then, with Aug-23 prices at $470/tonne and Sep-23 prices declared at $550/tonne – coupled with an increase in import duties to ~18% from less than 6% earlier.
Gujarat Gas industrial prices are now at a discount to propane for the first time in six months. While this pricing strength is welcome and helps protect volumes in the critical Morbi region (43% of total Gujarat Gas volumes), vulnerability of volumes to alternate fuel prices remains high, while slower than expected development from new areas is a return-dilutive concern.
We raise our FY24E/FY25E earnings per share by 4.1%/1.1%, but reduce the target price by 2%. Reiterate 'Hold'.
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