Buy Gujarat State Petronet; target of Rs 342: Sharekhan

Sharekhan's research report on Gujarat State Petronet

GSPL’s earnings outlook has improved considerably, given the steep decline in spot LNG price and cap on APM gas price. Thus, we expect strong volume recovery over FY2024-FY2025 from CGD/refinery and petchem sectors, which could take GSPL’s volume to ~32 mmscmd (implies 25% y-o-y growth) in FY2024. Favourable amendments (in November 2022) to gas pipeline tariff bode well for revival in gas pipeline capex cycle (GSPL has planned capex of ~Rs. 3,000 crore to connect the pipeline to new LNG terminals in Gujarat), which would support GSPL’s tariff. Gujarat state government’s recent policies would support shareholders’ returns, as GSPL has already increased dividend payout to 30% and we see a possibility of share buyback (companies with cash of >Rs. 1,000 crore to exercise buyback), given rising cash on books amid high FCF generation (Rs. 777 crore in FY2023).

Outlook

We maintain Buy on GSPL with an unchanged PT of Rs. 342 as the core pipeline business is available at only 2x its FY2025E EPS.

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