Gujarat Gas may rally to Rs 450, says SP Tulsian

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Gujarat Gas may rally to Rs 450, says SP Tulsian

Gujarat Gas may rally to Rs 450, says SP Tulsian, sptulsian.com.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See previous views by SP Tulsian See what other Experts & Brokerages are saying about Guj Gas See messages about Guj Gas

Gujarat Gas may rally to Rs 450, says SP Tulsian, sptulsian.com.

Tulsian told CNBC-TV18, "Gujarat Gas Company, there may be a problem in the temporary phase but I don't think that is really a sustainable problem. In fact the trigger for my picking up the stock is that they want to exit from the company, the main promoter who are holding 65% stake and they have given the indications that they will be looking to exit from the stock and that is the big trigger and in fact the kind of interest I expect because city gas distribution ultimately is the theme for the future because the kind of business being eyed by the Reliance Industries or the Adani Group, there are so many other player across the Pan India but this company they have their strong- they are the largest private sector natural gas distribution company with presence in Gujarat with pipe network of about 3700 Kms."

He further added, "If I take the financial performance of the company for calendar year 2010 they had a turnover of about Rs 1800 crore and PAT of Rs 260 crore which translated into an EPS of 20 and this kind of performance has been achieved by the company in the first nine months, the same performance that is about Rs 19 EPS, Rs 250 crore bottom line, Rs 1800 crore top line. That means the company even in the present scenario if I say that the management has been little apprehensive or not very comfortable with the short term scenario in spite of that the company has been posting a growth of 30-35% which is evident from the 9 months results."

"So one can make out that what kind of future it holds and the talk which is going on that probably if the LPG subsidy has to be phased out then probably the pipe distribution gas has to play in the time to come and if I take the financials, net worth of Rs 1100 crore of which Rs 600 crore are lying in the cash with the company that translates small amounts to about Rs 50 per share but what my point is that if you take the present market price of Rs 345-350, it gives you a market cap of close to about Rs 4500 crore and if you knock out this Rs 600 crore the enterprise value works out to about Rs 38-3900 crore which translates to about Rs 1 crore per kilometer of network which is very low considering the replacement cost or anybody wants to create. In fact this kind of infrastructure is being created by so many other companies. In fact you see these kinds of things available only in the very few states and cities. So if present kind of network is created by so many other groups Pan India obviously this will be eyed by the potential acquirer and if the share is ruling now at a PE multiple of 14 on the historic and even if I factor in a growth of 25% probably share is ruling at a PE multiple of 11-12. So I see huge value coming out of that. Only point is that who ultimately acquires this company when the promoter exits. So yes if somebody can keep a view of about 6-12 months, these events will get finished in this period and one can expect a price of Rs 425-430 or Rs 450 in next 8-10 months."

Disclosure: No holding or interest in any of the stocks.