Sell Gujarat State Petronet; target of Rs 172: Dolat Capital

Dolat Capital's research report on Gujarat State Petronet

Gujarat State Petronet (GSPL) volumes were below our estimates. Revenue and profitability were below estimates due to lower than expected volumes and higher than expected other expenses. However, this was offset to some extent by increase in transmission tariffs. Transmission tariffs increased by 32.6% YoY to ` 1.48/SCM. With lower economic activities, spot volume proportion should have been lower and impacted tariff and revenue. Considering that RIL volume off-take will reduce in FY20, volumes are expected to reduce on a sequential and yearly basis. Transmission tariff orders are implemented and there is no near term trigger on this front. With both volume and tariff outlook looking muted, we expect limited revenue growth along with profitability.

Outlook

Investments in Gujarat Gas and Sabarmati Gas will reap limited fruits. Investments in consortium for transnational pipelines is a concern in medium term. Considering these factors, we downgrade the stock to Sell with a target price of ` 172.