Gujarat Gas shares jump 14% on merger plan; extend rally for 4th session

Shares of state-owned Gujarat Gas, the country’s largest city gas distribution company, rallied nearly 14% to hit a fresh 52-week high in opening trade on Monday, extending gains for the fourth consecutive session, after its board approved scheme of arrangement and amalgamation. As per the scheme, Gujarat State Petroleum Corporation Ltd (GSPC), GSPC Energy Ltd (GEL), and Gujarat State Petronet Ltd (GSPL) will be merged into Gujarat Gas. The amalgamation is subject to approval from stock exchanges, SEBI, shareholders and creditors, and the ministry of corporate affairs.

This will be followed by splitting-off of Gujarat Gas's gas transmission business into a new entity, GSPL Transmission Limited (GTL), which will be listed separately on stock exchanges. The management of Gujrat Gas expects to complete the transactions by August 25.

Reacting to the news, shares of Gujarat Gas surged as much as 13.6% to touch a new 52-week high of ₹689.45, while the market capitalisation climbed to ₹45,800 crore. The PSU stock opened higher for the fourth straight session at ₹632.45, up 4.2% against the previous closing price of ₹606.70 on the BSE.

The share price of Gujarat Gas has risen 74% against its 52-week low of ₹397.20 touched on October 26, 2023. In the last one year, the PSU stock has gained 45%, while it added 12% in six months. In the calendar year 2024, the energy stock soared 36%, whereas it witnessed flat growth in the last one month.

As per the scheme of amalgamation, GSPC shareholders will get 10 equity shares of ₹2 each in Gujarat Gas for every 305 equity shares of ₹1 each held in the company. In a similar way, Gujarat State Petronet shareholders will receive 10 equity shares of ₹2 each in Gujarat Gas for every 13 equity shares of ₹10 held.

In case of new transmission entity, Gujarat Gas shareholders will get 1 equity share of ₹10 each in GTL for every 3 equity shares of ₹2 held in the company.

As per the company, the amalgamation will help in achieving better business synergies and growth; simplification of GSPC group holding structure; and improvement in efficiency and enhancement of scale of operations. This will also lead to unlocking of shareholders’ value and optimum utilisation of resources.

Based on the proposed share swap, domestic brokerage Motilal Oswal sees up to 5% upside for Gujarat State Petronet. For Gujarat Gas, the brokerage house has maintained ‘BUY’ rating with a target price of ₹715.

“While Q2 FY25 volume momentum is expected to be weak QoQ amid high spot LNG prices and a one-month shutdown in the Morbi cluster, we believe volumes should pick up in H2 FY25-FY26 amid improved competitiveness vs. propane. We keep our estimates unchanged as the scheme is expected to be completed in Aug’25,” it says in a note.

As per the brokerage, approval from SEBI and stock exchanges is expected by Dec’24, while nod from shareholders, regulatory authorities and MCA is expected by May 25. Shares pursuant to the scheme will be issued within one month of the receipt of all the approvals, after which trading of Gujarat State Petronet will be suspended. “The listing of additional shares of Gujarat Gas and the listing of GTL should be completed by Aug’25, marking the completion of the scheme.”

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