Buy Gujarat State Petronet; target of Rs 205: ICICI Direct

ICICI Direct's research report on Gujarat State Petronet

Gujarat State Petronet (GSPL) reported its Q1FY18 results, which were above our estimates on all fronts. Revenues increased 14.8% YoY to Rs 296.3 crore above our estimate of Rs 265.3 crore mainly on account of higher than estimated volumes and transmission tariffs Gas transmission volumes increased 7.2% YoY to 26.9 mmscmd (our estimate: 26 mmscmd). Transmission tariffs increased 7.9% YoY to Rs 1.2/scm above our estimate of Rs 1.1/scm. EBITDA increased 18.3% YoY to Rs 276 crore above our estimate of Rs 230.5 crore due to higher volumes, higher tariffs and lower other expenses Subsequently, PAT increased 25.8% YoY to Rs 152.5 crore above our estimates of Rs 126 crore.

Outlook

GSPL’s transmission business is expected to report some volume growth on the backdrop of growth in CGD & PNG sectors and increased LNG capacity. GSPL board has also approved the equity investment of 11% in Swan LNG Pvt. Ltd. The expected upward revision of transmission tariffs by PNGRB in coming months would be a key positive for the stock. GSPL investments in CGD entities like Gujarat Gas (25.8% stake) and Sabarmati Gas (27.5%) would also create value for investors in future. We value GSPL investments at Rs 50/share. We have a BUY recommendation and value GSPL based on SOTP basis to arrive at a target price of Rs 205.