Motilal Oswal's research report on Gujarat State Petronet
Gujarat State Petroleum (GUJS) has a 54% stake in Gujarat Gas (GUJGA), which amounts to a market capitalization of INR197b, much higher than GUJS’ m-cap at INR156b. Major concerns for the above anomaly have been: a) expected decline in tariffs of GUJS due to over-utilization of the High Pressure grid, and b) concerns over the usage of cash. Gujarat State Petroleum Corporation (GSPC), the parent company of GUJS with a 37.6% stake, has traditionally been a debt ridden company, raising concerns whether the cash generated by GUJS may be used to reward minority shareholders. In our earlier report (Large appetite for growth), we have addressed the first concern on tariff. This note busts the second myth.
Outlook
At a 25% holding company discount, the 54% stake in GUJGA provides a valuation of INR275/share to GUJS. We value GUJS’ standalone operations at 7x to arrive at our TP of INR400/share (core business continues to trade for free) and reiterate Buy.
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