Gujarat Energy gains from Morbi recovery and strong gas-trading margins

Investment View and Business Reorganisation

Motilal Oswal Financial Services reiterated its BUY rating on Gujarat Energy Limited following a strong 1QFY27 performance, led by the recovery in Morbi volumes and a sharp improvement in gas-trading earnings. The broker has set a target price of Rs 360, compared with the report CMP of Rs 274.

Gujarat Gas was transformed into an integrated energy company and renamed Gujarat Energy Limited under the GSPC Group Composite Scheme of Arrangement, effective May 1, 2026. The company now operates across exploration and production of oil and gas, gas trading, gas transmission, power generation and city gas distribution. The gas-transmission business has been demerged into GSPL Transmission, for which separate BSE and NSE listing was under way.

1QFY27 Operating Performance

Actual 1QFY27 city gas distribution volumes were in line with Motilal Oswal's estimate at 12.3 mmscmd, up 39% year on year. CNG volumes were 3.8 mmscmd, up 13% year on year and 3% above the broker's estimate. Industrial and commercial PNG volume was 7.9 mmscmd, up 62% year on year and 4% above estimate, while domestic PNG volume was 13% below estimate. Total PNG volume was 8.6 mmscmd, up 55% year on year. Third-party gas-trading volumes were 3.3 mmscmd in 1QFY27, compared with 4.6 mmscmd in 4QFY26. CGD EBITDA per scm was Rs 5.2.

Standalone revenue was Rs 94.4 billion, up 65% year on year and 64% quarter on quarter. EBITDA rose 68% year on year and 66% quarter on quarter to Rs 13 billion, 9% above Motilal Oswal's estimate. EBITDA margin was 13.7%, compared with 13.6% in 4QFY26 and 13.4% in 1QFY26. Adjusted PAT was Rs 10 billion, up 78% year on year and 76% quarter on quarter.

Gas-trading EBIT increased three times year on year and 78% quarter on quarter, aided by favourable sourcing economics, timing and long-term Brent-linked contracts. CGD EBIT rose 8% year on year and 35% quarter on quarter.

Morbi Recovery and Growth Initiatives

Motilal Oswal highlighted the sharp recovery in Morbi as a key positive. Morbi volumes rose from 0.4 mmscmd in April 2026 to more than 8 mmscmd during May and June 2026, resulting in an average 1QFY27 volume of 5.67 mmscmd.

Management guided for CNG volume growth of more than 12% year on year in the medium term. It plans to add more than 75 CNG stations and upgrade more than 70 stations in FY27, against 844 existing stations. Six stations were added and nine were upgraded in 1QFY27.

The broker also sees long-term volume growth potential from new and expanding industrial units and infrastructure investment to promote industrial gas adoption in Thane rural, Ahmedabad rural and the newly acquired Rajasthan areas.

Key Monitorables and Risks

• The expected GTL listing by September 2026.
• Morbi's moderation to around 3 mmscmd in 2QFY27-to-date as propane availability improved.
• The relative price gap between propane at Rs 65 per scm and PNG at Rs 78 per scm.
• Despite Rs 7.2 billion of gas-trading EBIT in 1QFY27, management retained its annual gas-trading EBIT guidance of Rs 11–12 billion. An upward revision would be material.

Non-Morbi industrial and commercial volume remained range-bound at 2 mmscmd in 1QFY27. Management targets 3 mmscmd over the next 1.5 years after adding 86 new connections in the quarter.

Jubilant Offshore Drilling's default on KG-block cash calls created a Rs 5.27 billion receivable, which was fully impaired through FY26 amid uncertain recovery. Gujarat Energy is pursuing recovery through forfeiture and assignment of the participating interest, subject to NCLAT proceedings and government approval. No further impairment was recorded in 1QFY27.

Sum-of-the-Parts Valuation

Motilal Oswal's target price of Rs 360 is based on a sum-of-the-parts valuation.

At the report CMP of Rs 274, the stock traded at 11.8 times FY28E P/E.