Gujarat Energy faces lower Morbi volumes despite trading-led Q1 EBITDA beat

Investment View and Key Concern

In its August 12, 2026 Q1FY27 result update, Prabhudas Lilladher maintained its Hold recommendation on Gujarat Energy while reducing its target price to Rs275 from Rs293. The broker's central concern is that improved propane availability is reducing gas demand in Morbi, prompting lower city gas distribution (CGD) volume assumptions despite a substantial Q1FY27 EBITDA beat driven by the gas trading business.

Q1FY27 Financial Performance

Gujarat Energy reported Q1FY27 revenue of Rs9,440 crore, up 64.8 per cent year-on-year and 63.8 per cent sequentially, broadly in line with Prabhudas Lilladher's Rs9,480 crore estimate. EBITDA was Rs1,300 crore, up 68.1 per cent year-on-year and 65.5 per cent quarter-on-quarter, materially ahead of the broker's Rs950 crore estimate and the Bloomberg estimate of Rs890 crore. EBITDA margin was 13.7 per cent, compared with 13.6 per cent in Q4FY26 and the broker's 10.0 per cent estimate. Reported profit after tax was Rs1,000 crore, up 77.9 per cent year-on-year and above the Rs720 crore estimate.

Trading Business Drives EBITDA Beat

The EBITDA outperformance was principally attributable to trading. Trading EBITDA reached Rs730 crore, around twice the year-earlier level, reflecting timely gas sourcing at favourable prices. CGD EBITDA was Rs580 crore, increasing 25.2 per cent quarter-on-quarter and 7.0 per cent year-on-year. E&P EBITDA fell 78.6 per cent quarter-on-quarter and 57.1 per cent year-on-year to Rs3 crore, while power EBITDA was Rs18 crore, around twice the preceding quarter.

Management retained FY27 trading EBIT guidance of around Rs1,100 crore to Rs1,200 crore, with trading margins of 4-5 per cent. Management indicated a growing focus on back-to-back contracts to reduce commodity-price exposure. Fertiliser contracts are largely Brent-linked with three-month pricing, whereas power-sector volumes are predominantly spot.

CGD Volume Growth and Morbi Pressure

Q1FY27 total CGD sales volume grew 39.1 per cent both quarter-on-quarter and year-on-year to 12.3 mmscmd. Industrial and commercial PNG volume rose 80.7 per cent quarter-on-quarter and 62.5 per cent year-on-year to 7.9 mmscmd, while CNG volume increased 4.4 per cent quarter-on-quarter and 12.9 per cent year-on-year to 3.8 mmscmd. Domestic PNG volume remained weak at 0.7 mmscmd, down 23.1 per cent sequentially and up only 1.4 per cent year-on-year.

Management stated that Morbi gas sales had moderated to around 3 mmscmd from an around 8 mmscmd run-rate in May-June 2026, as propane supply sources diversified beyond the Middle East. Morbi received around 5.5 mmscmd through propane, which was priced at around Rs65/scm versus gas at around Rs78/scm. Management expects to sustain roughly 3 mmscmd of gas sales in Morbi and is evaluating a propane import and storage terminal near Morbi.

Prabhudas Lilladher therefore reduced its FY27E and FY28E CGD volume estimates to 10.4 mmscmd and 9.9 mmscmd from 12.1 mmscmd and 10.7 mmscmd, respectively. The broker estimates CGD EBITDA per scm of Rs5.3 for FY27E and Rs5.7 for FY28E, versus management guidance of Rs5.5-6.5 per scm.

CGD Network Expansion and Capital Expenditure

Management added six CNG stations and upgraded nine during Q1FY27. It plans to add over 75 stations and upgrade around 70 in FY27. The company also added around 59,000 domestic PNG customers and around 86 industrial customers outside Morbi during April-June 2026.

CGD infrastructure capex was Rs127 crore in the quarter, and FY27 CGD capex guidance remains around Rs1,000 crore, excluding potential propane-related spending. Outside-Morbi volume growth remains constrained by infrastructure readiness and alternative fuels.

Earnings Estimates and Valuation

Following its volume revision, Prabhudas Lilladher reduced its FY27E and FY28E sales estimates by 4.4 per cent and 3.6 per cent, respectively. EBITDA estimates were reduced by 6.1 per cent in both years, while EPS estimates were cut by 3.3 per cent and 3.0 per cent, respectively.

The target price is based on a sum-of-the-parts valuation using 10 times FY28E EV/EBITDA for CGD and 4 times for gas trading, E&P and power. The valuation implies total enterprise value of Rs25,100 crore, equity value of Rs25,800 crore after net cash, and Rs275 per share.