Buy GSPL; target of Rs 146: Edelweiss

Edelweiss' report on Gujarat State Petronet (GSPL)

Gujarat State Petronet’s (GSPL) Q4FY15 PAT of INR671mn (30% below estimates) fell 24% QoQ and 27% YoY. Earnings miss was mainly on account of lower volumes and higher depreciation. Although spot LNG prices fell sharply favouring higher demand, GSPL’s volumes declined 4% QoQ (up 7% YoY) as there were temporary shutdowns by refinery consumers (Reliance Industries (RIL) and Essar Oil). Management highlighted that volumes have recovered ~10% Qtd and expects a further ~15% recovery in H2FY16. Also, a “prospective” tariff hike is likely in a month’s time. We remain enthused with GSPL’s city gas stakes (one-third of its volumes), which should see 8-10% p.a., volume growth. On better pricing and volume prospects, we maintain ‘BUY’ with a target price of INR146.

"GSPL expects tariff increase shortly, but on a “prospective” basis, as against the earlier indication of retrospective (from July 2012) benefits. We expect 15%/10% volume and tariff growth in FY16. On upbeat volumes and tariff prospects, we reiterate ‘BUY/SO’ with our DCF-based target price of INR146. At CMP of INR118, the stock trades at 12x FY17E EPS", says Edelweiss research report.

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