Buy Gujarat State Petronet; target of Rs 288: Sharekhan

Sharekhan's research report on Gujarat State Petronet

Q1FY23 PAT of Rs. 235 crore (up 16.5% q-o-q) beat our estimate led by better gas transmission margin given improvement in net transmission tariff. However, volumes remained muted at 29.5 mmscmd, up 1.7% q-o-q. Net transmission tariff increased by 9% q-o-q to Rs. 1.52/scm on ‘use or pay’ clause; volume from CGD/fertilisers was down 4% q-o-q each due to high spot LNG prices. Although high spot LNG price of ~$40/mmBtu and lower volume at Gujarat Gas would remain near term headwind for gas transmission volume but new LNG terminal and proposed capex to augment capacities bodes well for long term growth.

Outlook

We maintain Buy on GSPL but with a lower PT of Rs. 288 (due to lower value for Gujarat Gas) as core pipeline business is available at only 1.8x FY24E EPS and we expect subsidiary Gujarat Gas volume to also recover gradually.

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