Buy Gujarat State Petronet; target of Rs 180: Religare

The decline in LNG prices is gradually leading to a revival in industrial gas demand, especially from ceramic and power generation units. We expect consumption from these sectors to improve by 4-5mmscmd over FY17-FY18. Management highlighted that gas consumption is currently constrained by limited LNG regasification capacity. PLNG’s Dahej expansion (from Nov’16) and Mundra terminal (by end-2017) are expected to offer access to 36-40mmscmd LNG supply potential from FY19.Additional LNG supplies are expected from Pipavav’s 5mmtpa FSRU (~18mmscmd potential LNG supply, almost fully contracted by GSPC and OMCs),  expected to be commissioned by FY19.

 

We maintain GUJS’ fair value at Rs 180/sh, based on DCF for its pipeline business (Rs 161/sh) and the market value of its stake in Gujarat Gas (Rs 18/sh). Our pipeline business valuation implies a P/E of ~15x FY18E EPS, in line with gas utility peers. The company is not exposed to marketing margins, ensuring relatively lower earnings volatility. Maintain BUY. For all recommendations, click here 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.