Gujarat Gas Will Become Second Largest Gas Company In India, Post The Merger: Equirus Securities

complex deal for us to discuss this and more mik Patel head of research at equ Securities joins us now mik you've been quite bullish on this particular deal in fact you've gone ahead and upgraded Gujarat gas today what is your Asal for the same and why do you say that this is EPS acreative from day one good morning Rema good morning re thanks for having me uh see it's a very well thought merer from one more perspective uh government of Gujarat was looking to do the IPO of gspc in 2010 now with this merger uh that gspc which was an unlisted company has become a part of the listed entity so that is also resolved second point is that there were some 7200 CR of carried losses on the books of the gspc which are supposed to expire in this financial year now with merger that can period will be extended and the both entities gspc and Gujarat gas their profit will be there to absorb this this cared losses so that is the one reason why it has been EPS accretive from day one so our fi 26 EPS comes to around 37 38 rupees on a proforma basis on a extended Equity base but fi 27 when the tax credit this credit losses will go away mostly the EPS will come down uh another point I want to add that uh Gujarat gas after this merger will become a second largest integrated uh gas company in the country after Gale uh so that will attract and they have a lot of synergies in terms of a trading and and this one so far if you look at the trading was happening in gspc uh cgd was part of the Gujarat gas and the transmission was part of the gspl there were a lot of related party transaction between the gspc and Gujarat gas after this merger those related party transactions are also not there the Gujarat gas shareholders will definitely benefit from a larger entity uh the free cash flow of Gujarat gas if one exclude the transmission part of the business will be close to 2,500 CR rupes both the companies are currently having cash and the books are close to around 3,500 CR plus and that will be grow further they are adequately funded from expansion of further any capex that required to do in the gas infrastructure or in a renewable part sure mik thanks for joining in you like ly explained what it means for Gujarat gas but if I want to ask you quickly what it means for gspl as well and what is the value that you're ascribing to GTL which will be you know eventually demerged and listed separately so if you look at the history of gspl uh it has always been a very deep value buy stock for us and one of the reason was that gold Cod discount was almost 50 to 70% so today GSL own 54% state in Gujarat gas and and Market was not ascribing that value the stock obviously has run up something in the last one week close to around 25% or so so after that the hold Cod discount has narrowed down to 15 20% now investors could have asked for a little more that hold Cod discount should have been zero but I think this is the best proposition that they are getting it uh The dege Entity GTL will have two assets one is the transmission Network gas transmission Network in Gujarat uh and then there are two cross pipelines or J JV of the GS which is called GTI and gitl which is M Pipeline and Mal B pipeline so GTL will have two assets plus they will have close to, 1500 CR of cash on the books which they are currently holding that cash will go for their capex company has some close to around 3,000 CR of capex to be spent over next three to four years uh so GTL value in our view should be close to around 9,000 if you look at from a Gujarat gas share perspective which they will get it probably close to around 100 rupees per share should be the value of the the GTL for the guat shuder also one of thing important is for for G GSL shers to look at is that the Tariff of the gspl which was reduced in Mar in April 2024 there is a some kind of a possibility for the Tariff revision because they have appealed to the epel and the high court so if they get any favorable verdict from that there's a possibility of further upside in GSP okay mik one quick question uh eventually shareholders in India will have a choice between Gail and Gujarat gas you said Gujarat gas is going to be the second largest integrated gas player after Gail in India how do the valuations between the two Stack Up Gail versus Gujarat gas and which one would you recommend and why so obviously Gail is the much larger entity in terms of when if you look at the transmission volume which kill does is 130 mmm GSL transmission value was around 35 mm CMD Gil do trading of close to 100 mm CMD uh gspc was doing the trading of around 11 12 mm CMD they were pick at around 18 mm CMD few years back so Gale is a much larger now but in the Gale we have an pet cam asset also which is not creating or not generating enough profit in the last couple of years because of the high spot L prices and that plus they have some cap or more capex land in a pet cam so investors have some apprehensions about the pet cam profitability which has been very depress for most of the player including Reliance and others that Gil is investing more and more in pet camp and so I think probably if you ask me from the the thesis is that the spoty price will come down in in 2026 27 will go significantly lower because of the global LNG supplies coming up both will benefit it uh we have also buy rating on on the add rating on the Gil but if you ask me today from a longer time three to four years perspective Gujarat gas has an atively cleaner structure as they do not have any pet cam business into this currently sure mik lastly uh you know just to take remur point forward on Gail uh you know I was reading with this merger and the Dem merger of the gas shading business within Gujarat gas uh is that a regulary requirement that they had to do this D merger and if so do we expect similar you know kind of De merger happening in Gail as well the trading business will be separated and will be demerged and will that create a will that actually lead to a bit of a value unlocking for Gail share holders as well so there is a concept from the pngrb regulator the concept is called unbundling where your transmission asset and trading asset should be in a different company the concept currently if you look at for the Gil both transmission business and trading business are part of a similar company they are both division within the gild that there are some thoughts at a Ministry level and has been in a public domain that that Gil should demerge their trading business into separate company because it's in a conflict of interest between the trading and transmission but today there is no such regulatory requirement for Gil to do that the concept is available in a gpng GBS public domain it's a regulator's job to to to do that but as of now there is no regulat requirement of gu to demerge it what we can say that today because we both are a combined and Gail is both are part of the same company Gil is in a better position they can they can leverage that when they will become a separate probably consumer will benefit more than the what Gil can benefit to okay thank you so much mik and thank you so much n for joining us and giving us all of those details let's now slip into a short break when we return we will discuss Market technicals with Sony Patna and also discuss their top trading bets [Music]