Buy Gujarat State Petronet; target of Rs 221: Edelweiss

Edelweiss' research report on Gujarat State Petronet

Gujarat State Petronet (GSPL) reported in-line Q4FY18 EBITDA of INR2.9bn, up 44% YoY. Volume surged to 34.1mmscmd (7% ahead) and tariff stood at INR1.13/scm (in line), though offset by 15% higher-than-estimated operating expense. PAT of INR1.6bn rose 24% YoY. Volume growth extended its strong run on higher off-take from refining and city gas. QTD volume momentum remains strong at ~35mmscmd on sustained higher off-take by RIL (10mmscmd) and healthy power segment demand. A favourable tariff order is expected shortly—we estimate 12% tariff hike in FY19. Maintain ‘BUY’ with DCF-based revised TP of INR221 (INR240 earlier), factoring in higher net debt post Gujarat Gas acquisition and higher risk-free rate of 7.8% versus 7.6% earlier.

Outlook

Management indicated GSPL can clock ~30mmscmd volumes even with RIL’s reduced off-take, following commissioning of its petcoke gasification unit. We maintain that demand from city gas and higher off-take by OPAL are likely to offset any volume loss. At CMP, the stock trades at 13x FY20E PER. On robust volumes in the medium term and expected higher tariffs, we reiterate ‘BUY/SO’, with revised TP of INR221.