Accumulate Gujarat State Petronet; target of Rs 240: Dolat Capital
Dolat Capital’s research report on Gujarat State Petronet
Q2FY18 results were better than our estimates largely driven by higher than expected volumes. Higher volumes were due to low gas cost and these spot volumes resulted in higher transmission tariffs. The volumes were at 2,904 MMSCM above our estimates of 2,466 MMSCM. Average transportation at ` 1.112 per SCM. The volume traction has improved in this quarter, though withstand would be crucial. We feel that the key trigger to watch from these levels is the increase in the transportation tariff of long-term volumes. A lot of speculation has been going around regarding the timing and quantum of increase in transportation tariff. We feel if there is a significant increase in transportation tariff, the profitability can rise substantially. GSPL being a pure natural gas transporter does not own the gas at any point in time thereby negating the risk of the fluctuations in the natural gas prices. Tariff hike is expected in Q4FY18. Gujarat accounts for nearly 40% of India’s gas consumption and we expect this trend to continue. With the increase in gas supply through RLNG route, GSPL is a natural beneficiary of the increased usage of gas. With a network of around 2,500 km, GSPL is well placed to tap the gas potential of Gujarat. The systemic scale up with widening of the network, committed large industry consumers with Gas Transmission Agreements (GTA) brings the much-needed predictability to GSPL’s business model.
GSPL – the largest player in Gujarat and second largest trunk line operator in India has a huge prospect for the company to cash-in the conversion of India from oil consumption to gas consumption. With high FCF yield, we give an Accumulate recommendation with a TP of ` 240/share based on SOTP valuation. We value the core business at ` 189.5 per share on DCF basis, three transnational pipelines at ` 6 per share and GSPL’s stake in Gujarat Gas and Sabarmati Gas at ` 41.5 per share and ` 3 per share respectively.
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