Buy Gujarat State Petronet; target of Rs 350: Motilal Oswal

Motilal Oswal's research report on Gujarat State Petronet

Gujarat State Petronet’s (GUJS) 4QFY24 EBITDA was in line with our est. at INR3.8b, led by higher transmission volume of 33.4mmscmd. EBITDAM was 50bp higher than our estimate at 83.1%. Realization was lower than our estimate at INR 1,495/mmscm. Spot LNG price currently stands at USD10.5/mmBtu, down from USD12.6/mmBtu in 2HFY24, which bodes well for GUJS volumes.

Outlook

We expect GUJS’s volumes to jump to ~38.5mmscmd in FY26 as it is a beneficiary of: a) the upcoming LNG terminals in Gujarat, b) improved demand owing to the focus on reducing industrial pollution – Gujarat has five geographical areas identified as severely/ critically polluted, and c) the commissioning of Phase-II of the Mehsana-Bhatinda pipeline. Investments in GUJGA and Sabarmati Gas at a 25% holding discount provide a valuation of INR266. Valuing the core at 8x adj. FY26E EPS of INR10.4 and adding the value of investments, we arrive at our TP of INR 350. We maintain our BUY rating on the stock with a potential upside of 20%.