Gujarat Gas share price skyrockets 10% to 52-week high, propelled by merger, demerger news: Buy, Sell or Hold the stock?

Stock Market Today: Gujarat Gas Ltd share price skyrocketed 10% in morning trades to scale 52-wek high on Monday post announcement of new arrangements.

The unlisted Gujarat State Petroleum Corporation (GSPC), and listed entities Gujarat Gas (GGL), and Gujarat State Petronet ltd (GSPL) have all announced an arrangement plan whereby GSPC and GSPL will merge into Gujarat Gas. A new transmission and distribution company called GSPL Transmission Ltd. (GTL) will be formed which will thereafter be demerged and listed.

Gujarat State Petronet with gains of almost 6% too scaled 52-week high

The scheme of arrangements

The Scheme of Arrangement & Simplification of Corporate Structure is aimed at transforming the group into a large conglomerate with consolidated business presence across the Energy value chain

Under the scheme of arrangements the merger of GSPC with Gujarat Gas will take place with the issuance of 10 (Ten) fully paid equity shares of ₹2/- each of Gujarat Gas for every 305 (Three Hundred and Five) fully paid equity shares of ₹1/- each held by the shareholders in GSPC.

Also merger of GSPL with Gujarat Gas will take place with 10 (Ten) fully paid equity shares of ₹2/- each of Gujarat Gas for every 13 (Thirteen) fully paid equity shares of ₹10/- (Rupees Ten only) each held by the shareholders in GSPL

Merger of GSPC Energy Limited (‘GEL’) will also take place with Gujarat Gas.

Demerger of the gas transmission business from Gujarat Gas into newly incorporated entity GSPL Transmission Limited (‘GTL’) will thereafter take place. Shareholders will be issues one fully paid equity share of ₹10/- each of GTL for every 3 (Three) fully paid equity shares of ₹2/- each held by the shareholders in Gujarat Gas

Arrangement expected to be value accretive

The analysts at Antique Stock Broking consider this arrangement to be value accretive.

The objective of the merger is mainly to solve the slightly complex holding structure, mainly to unlock the value of Gujarat Gas shares being held by Gujarat State Petronet Ltd (GSPL) currently, as per Antique analysts. They believe that the merger is value accretive from day one for Gujarat Gas . The ₹2 per standard cubic meter (scm) trading margin being charged by GSPC from Gujarat Gas will now be valued at a higher multiple of the City Gas Distribution business. Further there is a higher intrinsic value of both GSPC and GSPL's business (as per antique's estimate) than being assigned. They also expect some synergy benefits from cost savings and lower indirect taxes, though these gains will be smaller. Antique has a Buy rating on Gujarat Gas with target price of ₹726.

Analysts at Motilal Oswal Financial Services based on the proposed share swap, see 5% upside for Gujarat Gas. For Gujarat Gas shareholders, these are following key implications after the merger:

First they estimate a combined value of the business at ₹633/share, implying 4.7% upside on curent market price.

Earnings per share is estimated to be ₹28.7, up 39% versus their FY25 EPS estimate.

Also Gujarat Gas may not pay taxes for the next four years due to ₹7200 Crore accumulated tax losses at GSPC (based on FY24 Profit before tax).

Earnings Volatility may rise

While Gujarat Gas earnings are to benefit from savings on elimination of trading margins it currently pays to GSPC, however earnings volatility will rise due to inclusion of trading business that should get a lower valuation multiples feel analysts at Jefferies India Ltd. Based on Jefferies calculation, once the scheme comes into effect in 1HFY26, Gujarat Gas fair value would rise to ₹513/share factoring in the value of GSPC and GSPL's core businesses, cash from these entities and benefit from tax losses carried forward, adjusted for the dilution in Gujarat Gas.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions