Buy Gujarat State Petronet; target of Rs 319: Motilal Oswal

Motilal Oswal's research report on Gujarat State Petronet

Gujarat State Petronet (GUJS) reported marginal beat on our EBITDA estimate at INR3.3b with volumes of 24.6mmscmd (our est. at 27mmscmd; -34% YoY, -17% QoQ) being offset by strong implied tariff at INR1,656/scm (16% ahead of our est., +19% YoY, +9% QoQ) during 2QFY23. Volumes were hurt by the shutdown of ceramic units for over a month in 2QFY23. However, Spot LNG price in 3QFY23 to date has fallen to USD28.9/ mmBtu (v/s USD45/mmBtu in 2Q). A further cooling of this price will result in a volume recovery in the coming quarters. We remain optimistic on the volume growth for the company with a CAGR of ~14% over the next three years. PNGRB has already taken up a tariff review of GUJS' HPP grid to determine the new tariff and would adjust it for the new tax regime. The proposed capex stands at INR45.4b up to FY32E, which would facilitate the transportation of gas from newer LNG terminals and obviate the need for a tariff cut. The stock is trading at a P/E of 12x FY24E EPS INR19.3 and EV/EBITDA of 7.7x. Return ratios are expected to be at 10-11% during FY23-24.

Outlook

We maintain our BUY rating with a TP of INR319, implying an upside potential of 34%.