Angel Broking recommends Accumulate on Gujarat State Petronet with a Target Price of Rs 64 (12 months)

Gujarat State Petronet (GSPL)'s 3QFY2014 volumes continued to decline although the realizations increased yoy. We recommend an Accumulate rating on the stock.

Top-line declines 7.9% yoy: GSPL's top-line declined 7.9% yoy to Rs. 245cr, mainly due to decrease in transmission volumes which although were partially offset by increase in realizations. The transmission volumes decreased by 26.6% yoy to 20.2mmscmd. The realizations however increased by 23.8% yoy to Rs. 1.29/scm.

Higher interest costs and lower other income dents PAT: The company's EBIDTA declined by 13.6% yoy to Rs. 207cr in-line with a decline in the top-line. The interest costs rose 12.2% yoy to Rs. 35cr and the other income declined 20.4% yoy to Rs. 14cr. The tax rate also increased to 37.3% in 3QFY2014 compared to 33.0% in 3QFY2013 and hence the PAT decreased by 26.6% yoy to Rs. 87cr.

Outlook and valuation: We believe GSPL is a leveraged play on increasing gas demand in Gujarat (the country's hydrocarbon capital) from gas-based power plants and rising spot prices. We remain concerned due to declining gas production from the KG-D6 block and expect a decline in volume for GSPL during FY2014. Nevertheless, we expect volumes to increase modestly in FY2015. Moreover, valuations are undemanding for a utility company at 0.9x FY2015E P/BV. Hence, we recommend an Accumulate rating on the stock, valuing it at 8.5x FY2015 P/E to derive a target price of Rs. 64.

Source : Equity Bulls

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