Buy Gujarat State Petronet; target Rs 78: LKP

LKP's report on Gujarat State Petronet (GSPL)

"GSPL's net profit of Rs1.26bn was higher than our estimate of Rs1.16 on account of higher transmission tariff. Transmission tariff increased by 56.3 percent yoy to Rs1.41/scm (qoq -20.2 percent), which was higher than our estimate of Rs 1.20/scm. Higher transmission tariff was on account of take-or-pay contract, whereby consumers continued to pay tariff despite transmitting lower gas volumes."

"GSPL's volumes for the quarter declined by 28.9 percent yoy to 2,015mmscm. The fall in gas transmission volume was due to falling gas production from KG D6. However on sequential basis, transmission volumes increased marginally by 1.1 percent. GSPL's operating profit for the quarter stood at Rs2.7bn (yoy +9.2 percent qoq -17.7 percent) which was higher than our estimate."

"We believe that concerns relating to transmission volumes will be an overhang on GSPL in the near term. However, we note that LNG capacities scheduled to come up by early FY15 could give much needed fillip to GSPL's gas volumes. We value GSPL on DCF basis given the long term earnings visibility and arrive at a fair value of Rs78 per share. We have used WACC of 11.5 percent and terminal growth rate of 2 percent for DCF valuation. We maintain our BUY rating on the stock with a target price of Rs 78. At the CMP, the stock is trading at 7.2x and 3.7x FY15e EPS and EBITDA respectively," says LKP research report.

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read More