Buy Gujarat State Petronet; target of Rs 82: Nirmal Bang

Nirmal Bang is bullish on Gujarat State Petronet and has recommended buy rating on the stock with a target of Rs 82 in its May 25, 2012 research report.

“Gujarat State Petronet (GSPL) posted a profit of Rs1,293mn (down 14% YoY, up 2% QoQ) for 4QFY12 compared to Bloomberg consensus estimate of Rs1,208mn and our estimate of Rs1,179mn. The company witnessed earnings boost on the back of surging blended tariff, which topped the Rs950/tscm mark, one of highest in the past 12 quarters. However, we trim our EPS estimates for FY13E/FY14E by 2.5%/10.3%, respectively, following reduced volume estimates. We retain our Buy rating on GSPL with a revised target price of Rs82, as its stock price reflects excessive fear premium on likely tariff cut.”

“Gas transmission volume stood at 2,830mmscm (31.1mmscmd) in 4QFY12, which was 11.57% down YoY and 6.14% down QoQ. Gas transmission volume in 4Q has been the lowest since 1QFY10 on lower volume from the Krishna Godavari Basin D6 block. We believe gas transmission volume from the KGD6 block would be around ~7-8mmscmd. We have reduced our volume estimates for FY13/FY14E by 1.4%/2.8%, respectively to factor in volume of 34/35mmscmd for the period. We believe FY13 would be a difficult year for GSPL’s volume following the sustained fall in KGD6 production and limited scope for garnering additional volume from RLNG (regasified liquefied natural gas) sources. We expect additional volume from FY14 onwards with the expansion of Shell’s LNG terminal in Hazira, Gujarat (1.3mtpa expansion planned in CY14).”

“We believe the Indraprastha Gas fiasco led to increased regulatory risk premium on all gas stocks, which led to a fall of ~15% in GSPL. The Petroleum and Natural Gas Regulatory Board’s approval to GSPL tariff is expected by early 2HFY13. We believe the recent stock correction in the wake of increased regulatory overhang is unwarranted as the current market prices implies discounted tariff of Rs610/tscm in perpetuity (compared to our estimate of Rs790/tscm), which appears untenable. We trim our EPS estimates for FY13E/14E by 2.5%/10.3% to Rs8.75/8.65, respectively, to reflect changes in our volume and tariff assumptions and lower the PE multiple for GSPC Gas and Sabarmati Gas to 12x from 15x to reflect uncertainty in the city gas distribution (CGD) business. We retain our Buy rating on the stock with a revised target price of Rs82 from Rs84 earlier, considering that it is trading close to (2x) SD P/BV, a level last seen in October 2008,” says Nirmal Bang research report.

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