HDFC Securities is bullish on Gujarat State Petronet has recommended buy rating on the stock with a target price of Rs 209 in its research report dated May 10, 2019.
HDFC Securities' research report on Gujarat State Petronet
Gas transmission volume for the quarter was 32.4mmscmd (-5.9% QoQ and -5.1% YoY) as against our estimate of 34.5mmscmd. Volume break-up in mmscmd was: Refinery 13, fertiliser 4, Power 4.2, CGD 7.1 and other 4.1. The volume outlook of GSPL shall remain robust owing to (1) The sole right to transmit regasified gas from Gujarat State Petroleum Corporation (GSPC) -Adani’s 5mmtpa LNG (equivalent to ~18mmscmd of natural gas at 100% utilisation) terminal at Mundra, (2) The near completion of Petronet LNG’s Dahej terminal expansion to 17.5mmtpa from 15mmtpa. Blended transmission tariff was Rs 1,464/tscm (+2.9% QoQ and +30.0% YoY) 2.0% higher than our estimate. The company had sought relief from the board to modify the tariff by duly considering various amounts that were overlooked earlier and revise the same to Rs 64.7/mmbtu from Rs 34/mmbtu for HP pipeline and Rs 9.39/mmbtu from Rs 4.08/mmbtu for LP pipeline. However, PNGRB recently rejected this petition saying that the final tariff is determined based on certain regulations and by considering inputs submitted by the company. Thus, there is no revision in tariff and the company will continue to charge tariffs as per the final order. Our assumptions are on the basis of the tariff finalised by the board in Sep-18.
We maintain BUY on GSPL post an in-line performance in 4QFY19. We value GSPL’s transmission business using Discounted Cash Flow (DCF) at Rs 119/sh. To this, we add Rs 90/sh as value of its investments in Gujarat Gas, Sabarmati Gas (30% discount to EV/EBTDA valuation) and other investments (at book value) to arrive at the target price of Rs 209/sh.
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