Buy Gujarat State Petronet; target of Rs 325: Motilal Oswal

Motilal Oswal's research report on Gujarat State Petronet

Gujarat State Petronet (GUJS)’s 2QFY24 EBITDA, at INR4.1b, beat our estimate led by lower-than-expected other expenses. EBITDAM, at 90.5%, was 500bp higher than our estimate. Volumes, at 30.2mmscmd, were lower than estimated. Management highlighted that there has been an increase in HP volumes that led to better realization with LP volumes declining during the quarter. The implied tariff during the quarter was INR1,587/mmscm. We estimate a tariff of INR1,511/mmscm for FY24 and INR1,374/mmscm for FY25. Lower spot LNG prices would benefit GUJS’ volumes. Currently, the price is at ~USD18/mmBtu, up from ~USD13/mmBtu (in 2QFY24), which could hurt GUJS’ volumes. That being said, the management guided that volumes could remain tepid in the near term for the company. The proposed capex for the HP gas grid stands at INR45.4b up to FY32E, which would facilitate gas transportation from newer LNG terminals. Although the company’s HP gas grid is also up for tariff revision, there was no specific timeline provided for the same.

Outlook

Owing to the outperformance in 2Q, we raise our EBITDA/PAT estimates (mainly because of higher other income in 2Q) by 6%/29% for FY24 while keeping our FY25 estimates unchanged as of now. The stock is trading at a P/E of ~14x FY25E EPS of INR19 and EV/EBITDA of ~9x. We maintain our BUY rating with a TP of INR325.