Gujarat Gas stock flies 14% on merger, demerger plan; brokerages upbeat

Brokerages see an upside of up to 23 per cent in Gujarat Gas stock as they believe that the restructuring of these Gujarat companies will simplify the existing layered structure.

Gujarat Gas (GGL) stock was buzzing in trade on Monday with the scrip rallying as much as 13.63 per cent to hit an intraday high of Rs 689.45 apiece on the BSE.

This comes after brokerages said they are optimistic about GGL following the board’s approval of a merger and demerger plan involving Gujarat State Petroleum Corporation (GSPC) and Gujarat State Petronet (GSPL).

Analysts believe that the restructuring of these Gujarat-based companies will simplify the existing layered structure.

According to the scheme, GSPC (10 GGL shares for 305 GSPC shares) and GSPL (10 GGL shares for 13 GSPL shares) will first be amalgamated into GGL.

 

Subsequently, the gas transmission business will be demerged and listed as a new entity called GSPL Transmission (GTL).

GGL will retain the city gas distribution (CGD) business, along with GSPC’s gas trading, exploration and production (E&P), renewables, and other investments.

Considering this, here’s what brokerages interpret from this merger and demerger plan:

Nuvama

Analysts at Nuvama estimate a 39 per cent increase in earnings per share (EPS) for Gujarat Gas.

They said that the merger allows GGL to utilise GSPC’s Rs 7,200 crore in tax losses over eight years and achieve around Rs 300 crore annually in indirect tax savings.

GGL will also benefit from better pricing for propane in Morbi by Rs 1.3 per standard cubic metre (SCM) or 3.2 per cent.

Thus, analysts have retained a ‘buy’ rating on GGL with a target price of Rs 745, an upside of 23 per cent.

For GSPL, Nuvama has removed the holdco discount on its 54 per cent stake in GGL but factored in an over 30 per cent increase in GSPL’s price over the past week.

Consequently, Nuvama has raised GSPL’s target price by 45 per cent to Rs 467, maintaining a ‘hold’ rating.

Motilal Oswal

Analysts have maintained their ‘buy’ rating on Gujarat Gas with a target price of Rs 715, reflecting an upside of 18 per cent.

Despite a projected weak volume momentum in Q2 FY25 due to high spot LNG prices and a one-month shutdown in the Morbi cluster, Motilal Oswal anticipates a recovery in volumes in the second half of FY25 and FY26. This comes as competitiveness against propane improves.

Their estimates remain unchanged, with the scheme expected to complete in August 2025.

Motilal Oswal analysts also highlighted that Gujarat Gas is expected to see improved margins and return ratios, along with enhanced cash flows. Additionally, related-party transactions between GSPC and GGL will be eliminated.

“Shareholders of GSPL will witness value unlocking as they receive shares of both GGL and GTL. Moreover, the demerger will facilitate an independent, market-driven valuation of GTL,” they added.

Kotak Institutional Equities

Contrastingly, Kotak Institutional Equities analysts have suspended their previous ‘buy’ rating. They estimate that the transaction is approximately 5-6 per cent more favourable for GSPL minorities compared to GGL minorities.

Until GSPL’s delisting (likely by June 2025), Kotak expects GSPL’s stock to move in tandem with GGL rather than reflecting its own fundamentals.

“Post-restructuring, GSPL will be a pure transmission business.

Apart from the CGD business, GGL will get profitable gas trading and other businesses of E&P, renewables, gas-based power generation, and LNG terminals,” analyst at Kotak Institutional Equities said.

Meanwhile, the stock settled 11.91 per cent higher at Rs 678.95 per share on the BSE. In comparison, the Sensex closed 0.24 per cent higher at 82,559.84 levels.