Buy Gujarat State Petronet Ltd : Domestic gas set to save the day - ICICI Securities
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Buy Gujarat State Petronet Ltd For Target Rs.368
Domestic gas set to save the day
Gujarat State Petronet’s (GSPL) Q4FY21 standalone EPS was down 9% YoY, despite flat PBT, hit by 37% YoY rise in tax on a low base; 50% YoY fall in interest cost made up for volume fall. Consolidated Q4 PBT was up 25% YoY on 45% surge in PBT of subsidiary Gujarat Gas (GGL), but EPS was up just 9% YoY on tax jump. High spot LNG and covid are headwinds, but rise in domestic gas GGL uses will support its margin and that GSPL transports will support its volumes.
We have cut GSPL’s FY22E standalone EPS by 11% on 8% cut in volumes, but raised consolidated EPS by 1% on 17% upgrade in GGL’s profit. Target price is up 16% to Rs368 (29% upside) on rise in market value of GGL (25% holding company discount). We reiterate BUY on GSPL, a cheaper play on GGL’s growth story.
* Standalone Q4 EPS down 9% YoY, but consolidated up driven by GGL: GSPL’s Q4FY21 standalone EPS is down 9% YoY, despite flat PBT, hit by 37% YoY rise in tax on a low base. 50% YoY fall in interest cost helped make up for 8% YoY fall in transmission volumes to 33.8mmscmd. Tariff was down Rs240/mscm YoY on transmission expenses fall by Rs233/mscm YoY. Q4 consolidated PBT was up 25% YoY driven by 45% YoY rise in PBT of GGL, but EPS was up just 9% YoY due to 91% YoY rise in tax. FY21 standalone recurring EPS was down 7% YoY as volumes fell 3% YoY and tariff adjusted for expenses also fell 3% YoY. FY21 consolidated recurring EPS was up 24% YoY on the back of 39% YoY rise in GGL’s profit. Rise in share of profit of associates was Rs224mn YoY in Q4 and Rs446mn YoY in FY21.
* Raise FY22E EPS and target price: High spot LNG price has hit power sector gas volumes and are a threat to GGL’s margins while covid has hit CGD volumes. However, KG-D6 and Rajasthan gas transported by GSPL will support volumes and bought by GGL its margins. We have cut GSPL’s FY22E volumes by 8% to 37mmscmd (up 1% YoY), leading to 11% cut in standalone EPS. However, we have raised consolidated EPS by 1% on upgrade of GGL’s profit by 17%. Target price is raised by 16% to Rs368 (29% upside) on rise in GGL’s share price. We retain BUY.
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