The December quarter scorecard of Gujarat State Petronet (GSPL) seems to have failed to cheer investors as the stock traded with nominal gain in an otherwise buoyant market.
The company reported its December quarter (Q3FY23) scorecard post market hours on February 13.
As per the BSE filing, the company's standalone revenue from operations slipped 14.6 percent year-on-year (YoY) to ₹402.41 crore against ₹471.15 crore in the corresponding quarter a year ago.
Net profit after tax (PAT) for the period stood at ₹170.93 crore, down 31 percent YoY against ₹248.10 crore in Q3FY22.
The stock has been under pressure during the last one year and has significantly underperformed the market benchmark Sensex.
Despite disappointing quarterly numbers, most brokerage firms have kept faith in the stock and retained their 'buy' recommendation on it. However, they have trimmed their estimates to adjust their target prices.
Brokerage views
Brokerage firm Nirmal Bang Institutional Equities (NBIE) maintained a 'buy' call on the stock but trimmed the target price to ₹416, still implying an almost 57 percent upside.
Nirmal Bang said the new PNGRB (Petroleum and Natural Gas Regulatory Board) pipeline tariff policy is positive for GSPL’s future growth and it also reduces the risk of any cut in tariff.
The brokerage firm is positive about the stock as it mentioned the following key catalysts for it:
(i) New PNGRB (Petroleum and Natural Gas Regulatory Board) pipeline tariff policy is positive for GSPL’s future growth; also reduces the risk of any cut in tariff.
(ii) Momentum in high growth city gas distribution segment and also refining; beaten down power segment could revive once LNG prices cool off.
(iii) Earnings leveraged to likely step change in long-term volume - 20-25 percent upside in volume in FY26E from base case implies EPS CAGR of 15.7 percent to 17 percent over FY23-FY26E.
(iv) Healthy gas demand outlook - estimated 5-year CAGR of 4.5 percent to 6 percent.
Nirmal Bang expects a change in the market perception of GSPL from a value stock to a growth gas utility, supported by earnings growth and gradual expansion in return ratios – which imply rerating on P/BV (price-to-book-value ratio) and PE (price-to-earnings ratio) multiples.
Brokerage firm Motilal Oswal Financial Services also maintained a 'buy' call on the stock with a target price of ₹339, implying a 28 percent upside in the stock price.
The brokerage firm believes the company could post a 22 percent CAGR in transmission volumes over FY23-FY25E.
Motilal Oswal underscored that the available LNG capacity in Gujarat is expected to grow by 55 percent to 42.5mmtpa over the next three-four years. Most of this volume may flow through Gujarat State Petronet's network.
"We reiterate our belief that Gujarat State Petronet's volumes would jump to nearly 37mmscmd in FY25E as the company is also a beneficiary of (a) the upcoming LNG terminals in Gujarat, (b) increased demand owing to the focus on reducing industrial pollution – Gujarat has five geographical areas (GAs) identified as severely/critically polluted, and (c) the commissioning of the Mehsana–Bhatinda pipeline," Motilal Oswal said.
Kotak Institutional Equities also maintained a 'buy' call on the stock but trimmed the target price to ₹375 from ₹380 earlier.
Kotak has cut FY2023E estimates by 10 percent and FY24-25E by 7-8 percent on near-term lower volume assumptions.
"GSPL’s Q3FY23 EBITDA was 15 percent below our estimates driven by further weak volumes and higher opex. With new KG-D6 volumes ramping up and LNG prices softer, volumes have likely bottomed and should recover from Q4FY23. We reiterate GSPL as our preferred pick among India gas, as mispricing (nearly 68 percent holding company discount) remains glaring," said Kotak.
"At the current prices, our valuation for the core transmission business implies nearly 70 percent holding company discount for GSPL’s majority 54 percent stake in Gujarat Gas. Put another way, adjusted for equity value for a stake in GGAS, GSPL’s core business is trading at negative ₹55 per share," added Kotak.
Emkay Global Financial Services, too, maintained a 'buy' rating on GSPL with a target price of ₹350.
"For GSPL, the upcoming tariff review is crucial to medium-term earnings visibility, as the stock continues to trade at attractive valuations. We build-in an effective tariff cut of nearly 30 percent now, taking positive cues from the amendment regulations," said Emkay.
Disclaimer: The views and recommendations given in this article are those of the broking firms. These do not represent the views of MintGenie.
