Gujarat Gas Gains 7%: Nomura Sees Demand Boost From LPG Shortage

Gujarat Gas shares jumped close to 7% on Friday after Nomura sharply upgraded the stock, pointing to a potential recovery in demand and a better risk-reward after recent declines. The stock is still down about 17% this year and over 21% in the past 12 months, following disruptions linked to the Iran conflict.

The rise comes after a volatile phase for gas companies. Supply concerns tied to the Strait of Hormuz had weighed on the sector, forcing Gujarat Gas to invoke force majeure on some contracts. On Friday, the stock moved up as sentiment improved alongside hopes that tensions in the Middle East may ease.

At 01:39 PM, Gujarat Gas shares were up 7.78% at ₹361.60.

Why Was The Stock Upgraded?

The upgrade call rests on a supply shift already playing out. It was highlighted that 80–90% of India’s LPG imports come from the Middle East, where recent disruptions have tightened availability.

There has been growth in domestic output, but it is not sufficient. Even with a 40% rise in LPG production, the country may still see a supply shortfall near 50%. Priority goes to households, so industrial users face tighter constraints.

In Gujarat’s Morbi cluster, ceramic units that rely on propane have already stopped operations due to shortages. Many of them are now evaluating a switch to natural gas. If this transition holds, it directly adds to Gujarat Gas’ volumes.

Nomura also expects pricing to hold up. Manufacturers are looking to raise prices by 15–25% to absorb higher fuel costs, which may support margins for gas suppliers.

Is The Iran War A Buying Opportunity?

The answer depends on how long current conditions last.

A tighter oil market could push up petrol and diesel prices after elections, making CNG relatively cheaper. That improves the case for city gas distributors in both transport and industrial segments.

There is also a policy angle. The government is working on a framework to expand piped natural gas usage in areas where infrastructure exists. Over time, this can shift industrial demand towards gas.

However, there is also some risk involved. Some experts argue that LPG supply constraints are temporary and logistical in nature. The need to change fuel types may no longer be a pressing issue if supply is normalised soon.

On the other hand, the price of LNG may remain high amid global supply shortages. Industries will likely continue using propane over LNG if it is more expensive, resulting in delayed volume improvements for Gujarat Gas.

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What Comes Next?

Nomura has indicated over 16% upside potential from current prices. However, it has lowered its near-term forecasts owing to high LNG costs but raised long-term estimates based on higher volumes.

For now, the stock is reacting to expectations. Whether the rally sustains will depend on actual demand from industrial users and how fuel price gaps evolve over the next few quarters.

Source:

The Economic Times