Buy Gujarat State Petronet Ltd. For Target Rs.350 - Motilal Oswal Financial Services
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In-line EBITDA led by strong volumes
* Gujarat State Petronet’s (GUJS) 4QFY24 EBITDA was in line with our est. at INR3.8b, led by higher transmission volume of 33.4mmscmd. EBITDAM was 50bp higher than our estimate at 83.1%. Realization was lower than our estimate at INR1,495/mmscm.
* Spot LNG price currently stands at ~USD10.5/mmBtu, down from ~USD12.6/mmBtu in 2HFY24, which bodes well for GUJS volumes.
* We see minimal downside for GUJS from current levels given a robust volume trend. Assuming a 25% holding company discount, its Gujarat Gas stake is worth INR264, while we value the core business at INR83.
* We keep our estimates unchanged as the 4Q performance was largely in line with our estimates. The stock is trading at a P/E of ~24x FY26E EPS of INR12.1 and EV/EBITDA of ~15.4x. Maintain BUY with a TP of INR350.
In-line performance; robust growth in volumes YoY
* Total volumes were in-line with our est. at 33.4mmscmd (+33% YoY) ? CGD volumes increased to 11.4mmscmd (+18% YoY)
* Fertilizer volumes were at 4.6mmscmd (+58% YoY)
* Power/ref-petchem volumes at 2.9/8.7mmscmd (+3x/+24% YoY) ? Other volumes stood at 5.6mmscmd (+27% YoY)
* EBITDA was INR3.8b (our est. INR3.8b, +28% YoY). PAT was INR2.6b (our est. INR2.7b, +16% YoY) as the implied tariff was INR1,495/mscm (our est. INR1,550/mscm, -4%YoY). The tax was higher than our estimate
* For FY24, revenue was INR17.6b (+15% YoY), EBITDA stood at INR15b (+20% YoY), and PAT came in at INR12.8b (+36% YoY). Volumes stood at 30.5mmscmd (+20% YoY). Implied tariff was INR1,536/mscm (-4% YoY).
* The company has declared a final dividend of INR5/share (50% of FV).
Valuation and view
* The available LNG capacity in Gujarat is expected to grow 55% to 42.5mmtpa over the next two years. Most of this volume is likely to flow through GUJS’s network. We believe the company could post a 12% CAGR in transmission volumes over FY24-26.
* We expect GUJS’s volumes to jump to ~38.5mmscmd in FY26 as it is a beneficiary of: a) the upcoming LNG terminals in Gujarat, b) improved demand owing to the focus on reducing industrial pollution – Gujarat has five geographical areas identified as severely/ critically polluted, and c) the commissioning of Phase-II of the Mehsana-Bhatinda pipeline.
* Investments in GUJGA and Sabarmati Gas at a 25% holding discount provide a valuation of INR266. Valuing the core at 8x adj. FY26E EPS of INR10.4 and adding the value of investments, we arrive at our TP of INR350. We maintain our BUY rating on the stock with a potential upside of 20%.
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SEBI Registration number is INH000000412
