BUY on Gujarat State Petronet - In-line performance - HDFC Securities

Mr. Harshad Katkar & Mr. Nilesh Ghuge, Institutional Research Analyst, HDFC Securities.

Our BUY recommendation on Gujarat State Petronet with a TP of INR 252 is premised on the following: (1) robust transmission volume (+11% CAGR over FY21-23E to 50mmscmd) as benign spot LNG prices should continue to drive volume growth from industrial customers and encourage RIL to continue using LNG. This should translate into growth in standalone EBITDA and APAT by 12% and 15% CAGR to INR 21bn and INR 14bn in FY23E; (2) compelling valuation at 6.2x FY22E EPS, considering the high return ratios (RoE of 25% in FY21 and FY22E) and steady cash flows (combined FCF of INR 29bn over FY21-22E).

View on the result: 1QFY21 volumes, EBITDA and APAT were in line with our estimates.

Volumes: Gas transmission volume for the quarter was 33.3mmscmd (-10/-13% YoY/QoQ) as against our estimate of 34.0mmscmd. Volume break-up in mmscmd was: Refinery 11.3, Power 10.3, CGD 4.7, Fertilisers 2.7, and others 4.3.

Tariffs: Calculated blended transmission tariff for 1Q stood at was INR 1,298/tscm (+1% YoY and QoQ), which was in line with our estimates.

Mundra LNG terminal: Currently operating at 40% capacity owing to capacity constraints of the Mundra-Chotalia pipeline. Once this pipeline's capacity is augmented, the terminal's utilisation should improve as well, since it would then be connected to the high demand area of Morbi.

Change in estimates: We tweak our FY21/22E EPS estimates by +2/1% in FY21/FY22E to INR 25.0/32.0 to factor in the company's 1QFY21 performance.

DCF-based valuation: We value the transmission business using Discounted Cash Flow (DCF) at INR 93/sh (WACC of 11% and terminal growth rate of 3%). To this, we add INR 159/sh as the value of its investments in Gujarat Gas, Sabarmati Gas, etc., to arrive at the target price of INR 252/sh. The stock is trading at 6.2x FY22E PER.

Shares of GUJARAT STATE PETRONET LTD. was last trading in BSE at Rs.217.05 as compared to the previous close of Rs. 211.7. The total number of shares traded during the day was 295058 in over 2498 trades.

The stock hit an intraday high of Rs. 219.45 and intraday low of 213. The net turnover during the day was Rs. 63367513.

Source : Equity Bulls

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