Buy Gujarat State Petronet; target of Rs 350: ICICI Securities

ICICI Securities research report on Gujarat State Petronet

Gujarat State Petronet’s (GSPL) Q2FY24 revenue was up 22/20% YoY/QoQ, with volume up 23% YoY (up only 3% QoQ). Blended tariffs have been volatile over the last couple of quarters with a drop in Q1 followed by a recovery in Q2 (tariffs up 11% QoQ, down 4% YoY). Volume of 30.2mmscmd was up 23% YoY, but we believe momentum may build up further over H2 led by: i) higher domestic supplies, ii) moderate LNG prices, and iii) subsequent pricing comfort leading to growth in demand. Consolidated earnings were helped by strong QoQ performance of subsidiary GUJGA, with its consolidated EBITDA / PAT up 24.9% / 35.7% YoY, respectively. The recent moderation in spot LNG prices and higher domestic supplies make us optimistic about GSPL’s FY24-25E prospects. Additionally, with positive read-through from tariff amendments announced in recent months (refer our note here), we see earnings growth steadily recovering over the next 2 years. Reiterate BUY.

Outlook

We have revised our FY24E/FY25E consolidated EPS estimates by 7.5%/0.1%, respectively, to factor in higher other income and marginally higher tariff for GSPL, even as volumes see a reduced trajectory owing to the miss in Q2. This implies a revised target price of INR 350/sh (earlier INR 345/sh). Current valuation seems to more than compensate for holdco discount (for GUJGA stake) while underplaying the structural growth we see in core transmission business over the next 5-7 years. Valuation of 9.9x FY25E P/E /4.1x EV/EBITDA remains attractive. Maintain BUY.