HDFC Securities' research report on Gujarat State Petronet
Our BUY recommendation on Gujarat State Petronet with a TP of INR 252 is premised on the following: (1) robust transmission volume (+11% CAGR over FY21-23E to 50mmscmd) as benign spot LNG prices should continue to drive volume growth from industrial customers and encourage RIL to continue using LNG. This should translate into growth in standalone EBITDA and APAT by 12% and 15% CAGR to INR 21bn and INR 14bn in FY23E; (2) compelling valuation at 6.2x FY22E EPS, considering the high return ratios (RoE of 25% in FY21 and FY22E) and steady cash flows (combined FCF of INR 29bn over FY21-22E).
Outlook
We value the transmission business using Discounted Cash Flow (DCF) at INR 93/sh (WACC of 11% and terminal growth rate of 3%). To this, we add INR 159/sh as the value of its investments in Gujarat Gas, Sabarmati Gas, etc., to arrive at the target price of INR 252/sh. The stock is trading at 6.2x FY22E PER.
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