The brokerage has set a target price of ₹240 from ₹523 earlier. The changed target price implies a downside of around 6.5% from Tuesday’s closing price of ₹256.70.
Morgan Stanley had previously maintained an Overweight rating on the stock. The latest call therefore represents a sharp reduction in both its rating and target price.
Scale-up brings benefits, but risks rise
Morgan Stanley said the recent amalgamation of GSPC, Gujarat State Petronet and GSPC Energy into Gujarat Energy has expanded the company’s scale and earnings base, giving the newly amalgamated entity greater exposure across gas retail, trading, regasification and power.However, the brokerage believes higher exposure to spot LNG, competition from alternative fuels and low operating rates in downstream gas assets, including power and regasification, make the risk-reward unattractive.
“Tighter global LNG markets, Gujarat Energy’s elevated spot-gas exposure and improving propane competitiveness increase risks to gas margins and industrial volumes,” Morgan Stanley said.
The brokerage also flagged that the amalgamated entity operates at lower returns than key domestic peers. Potential non-core investments could further increase the risk of lower returns, it said.
Morgan Stanley sees limited upside on Gujarat Energy
Morgan Stanley acknowledged that the stock’s valuation is inexpensive, but said this alone does not offset the risks to earnings and returns.
According to Bloomberg analyst data, the consensus rating remains Buy, with 16 of 29 analysts recommending the stock, nine assigning a Hold rating and four recommending Sell.
The consensus target is at ₹354.99, which implies an upside of around 38.4% from the last traded price.
Shares of Gujarat Energy fell on Wednesday morning; they were trading 0.8% down at ₹254.50 as of 9.20 am. The stock has been under pressure and has delivered a negative 25% return over the last 12 months.
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