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

Motilal Oswal's research report on Gujarat State Petronet

GUJS reported an in line 1QFY23, with lower-than-estimated volumes offset by strong tariffs of INR1523/scm, led by use-or-pay contracts as well as change in volume mix on HP/LP networks. High spot LNG prices, at USD42/mmbtu, in Jul’22 remain a concern over the strong volume offtake in 2QFY23 as well. Moreover, the shutdown of several Ceramic units, given the high inventory, will impact volume in the near term. We remain optimistic about volume growth as long-term growth is expected from CGDs, and the Fertilizer and Refining sectors. Phase I of the Mehsana-Bhatinda pipeline has already turned cash flow profitable. Phase II is expected to be commissioned by the end of FY23, following which total volumes through this pipeline should reach 9.5- 10mmscmd.

Outlook

Investments in GUJGA and Sabarmati Gas, at a 25% holding discount, provide a valuation of INR223. Valuing the core at 5x, adjusted FY24 EPS at INR19.2, and adding the value of investments, we arrive at our TP of INR319. We maintain our Buy rating.

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