Motilal Oswal is bullish on Gujarat State Petronet has recommended buy rating on the stock with a target price of Rs 300 in its research report dated June 08, 2020.
Motilal Oswal 's research report on Gujarat State Petronet
Lower-than-expected volumes and implied tariff led to an EBITDA miss, while lower tax rate helped GSPL’s PAT (in-line) during 4QFY20. The QoQ volume decline was primarily led by lower gas offtake from various fertilizer and refining/petchem units due to the nationwide COVID-19 led lockdowns. Despite the COVID-19 impact, FY20 transmission volumes were up 9% YoY to 37.8mmscmd with implied tariff at INR1,379/scm (v/s INR1,455/scm in FY19). The company is a direct beneficiary of the (a) upcoming LNG terminals in Gujarat (the state tops India’s gas energy mix at 25%), and (b) renewed focus on reducing industrial pollution by the NGT (Gujarat has five geographical areas (GAs) identified as severely/critically polluted – like Morbi). - There are concerns over tariff reduction for the company, in line with the revised new tax rate and over-utilization of the pipeline. However, the increase in capex (due to capacity expansion) should ensure lesser impact on its tariff. We maintain Buy on the stock.
Outlook
The stock trades at 12.4x FY21 EPS of INR18 and 7.3x FY21 EV/EBITDA, ~38% discount to its last 5-year averages. We value the stock at 8x FY22E EPS of INR19.9 and add investments to arrive at a TP of INR300.
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