Gujarat Gas downgraded after Q1FY26 earnings miss

ICICI Securities devaluated Gujarat Gas Ltd (GUJGA: IN) from Buy to Add and reduced its price target to INR480.00 from INR650.00 on Thursday.

Earnings Fall Short of Expectations

ICICI Securities has downgraded Gujarat Gas following its Q1FY26 results, which came in below market expectations. The company reported an EBITDA of ₹5.2 billion and PAT of ₹3.3 billion, reflecting year-over-year declines of 3% and 1% respectively.

These figures significantly underperformed against ICICI Securities’ estimates of ₹6.3 billion in EBITDA and ₹3.9 billion in PAT.

Morbi Industrial Volumes See Steep Decline

The key driver behind the underwhelming results was a sharp drop in industrial gas volumes from the Morbi ceramic hub, Gujarat Gas’s largest industrial consumer. Volumes from Morbi stood at just 2.5 million metric standard cubic metres per day (mmscmd), missing the estimate of 3.1 mmscmd.

This represents a 52% year-on-year decline for the Morbi segment. Moreover, the four-quarter average of 2.9 mmscmd is down 16% compared to the previous six-quarter average, highlighting a sustained decline in demand from the region.

CNG and Domestic Segments Show Resilience

Despite the industrial weakness, CNG and domestic gas segments performed well, with volume growth of 12% and 11% respectively on a year-over-year basis.

Gujarat Gas continues to expand its footprint, now operating 830 CNG stations, serving 2.3 million households, and entering into 69 FDODO (Franchisee Dealer-Owned Dealer-Operated) agreements to further accelerate CNG station deployment.

Propane Price Advantage Clouds Outlook

The company implemented a price cut of ₹3 per scm on August 1, 2025, to support volumes. However, propane remains over ₹3/scm cheaper, posing a significant threat to gas demand recovery. ICICI Securities has flagged this price gap as a source of “material uncertainty” for volume growth over the next 12–18 months.

Muted Outlook Despite Attractive Valuation

While the stock trades at “unchallenging valuations”, analysts see “limited near-term triggers” for upside. The sharp fall in industrial demand, particularly from Morbi, remains a major concern, casting doubt over a quick recovery in Gujarat Gas’s growth trajectory.