Buy GSPL; target of Rs 151: Emkay

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Emkay's research report on Gujarat State Petronet (GSPL)

GSPL is confident of a gradual recovery in transmission volumes in ensuing quarters. In Q1FY16, average volume stood at 24.7mmscmd and currently, it is 27mmscmd, as stranded power plants have started off taking 2mmscmd. Management has guided that volume from stranded power plant would reach 3mmscmd by end of FY16

We have assumed conservative volumes of 25/28mmscmd for FY16/17 respectively. We expect a gradual pick up in off-take from Essar Steel, Essar Oil and OPAL to raise volumes from the current level of 1.7mmscmd to ~2.5mmscmd

PNGRB has come out with the draft amendment on tariff calculation based on which GSPL is likely to see at least 10% rise in tariff. Assuming 10% higher transmission tariff from current levels i.e. Rs1.26/scm, our FY16/FY17 EPS works out to Rs9.6/11.1, a 14% upside from base case estimates

We expect multiple triggers for GSPL, going ahead i.e. 1) sharp correction in spot LNG, 2) upward revision in tariff and 3) expected improvement in transmission volumes from Essar, OPAL and stranded power plants. Maintain Buy with a target price of Rs151, a 19.8% upside from current levels

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Considering revised tariff calculation post draft amendment of PNGRB, new tariffs are likely to be higher by atleast ~10-12%. LNG capacity addition at Dahej and Mundra will bring more volumes. We expect value un-locking from CGD investment to further improve valuations. At CMP, GSPL trades at 13x FY17EPS and 1.5x P/BV. We maintain Buy with TP of Rs 151 (core value Rs 117 and CGD investment Rs 34)", says Emkay Global Financial Services research report.

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