BUY on Gujarat State Petronet - Muted performance - HDFC Securities

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

Our BUY recommendation on Gujarat State Petronet with a TP of INR 270 is premised on the following: (1) robust transmission volume (+13% CAGR over FY21-23E to 51mmscmd) 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 20% and 22% CAGR to INR 42bn and INR 20bn in FY23E; (2) compelling valuation at 5.8x FY22E EPS, considering the high return ratios (RoE of 24/25% in FY21/22E) and steady cash flows (combined FCF of INR 25bn over FY21-22E).

View on the result: 2QFY21 EBITDA/APAT was 16/17% lower than our estimates, mainly due to lower-than-anticipated volumes and transmission tariffs.

Volumes: Gas transmission volume for the quarter was 39.8mmscmd (+2/+20% YoY/QoQ) as against our estimate of 41.7mmscmd. Volume break- up in mmscmd was: Refinery 9.9, Power 9.1, CGD 10.7, Fertilisers 3.2, and others 6.8.

Tariffs: Calculated blended transmission tariff for 2Q stood at was INR 1,240/tscm (-7/-5% YoY and QoQ), which was 6% lower than our estimates.

Change in estimates: We reduce our FY21/22E EPS estimates by 8.4/2.5% in FY21/FY22E to INR 23.8/32.1 to factor in the company's 2QFY21 performance.

DCF-based valuation: We value the transmission business using Discounted Cash Flow (DCF) at INR 95/sh (WACC of 11% and terminal growth rate of 3%). To this, we add INR 175/sh as the value of its investments in Gujarat Gas, Sabarmati Gas, etc. to arrive at the target price of INR 270/sh. The stock is trading at 5.8x FY22E PER.

Shares of GUJARAT STATE PETRONET LTD. was last trading in BSE at Rs.189 as compared to the previous close of Rs. 188.7. The total number of shares traded during the day was 6851 in over 332 trades.

The stock hit an intraday high of Rs. 189.7 and intraday low of 187.9. The net turnover during the day was Rs. 1293247.

Source : Equity Bulls

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