Gujarat State Petronet stock has lost 30% of its value so far in 2022 and is currently trading near to 52-week low of ₹209.4. The stock has delivered a negative return of nearly 28% over the last one year.
The stock started off well early in the year. On January 12, it hit a 52-week high of ₹336.5, but the stock failed to maintain this uptrend and dropped nearly 23% in three months. It continued to move lower and hit a 52-week low of Rs. 209.4 on June 23. At current levels, the stock is trading at 3 month low of ₹223.30.
However, domestic brokerage firm ICICI Securities has initiated coverage on the stock with a "buy" tag and a target price of ₹375/share, which hints toward an upside potential of 68% from the stock's previous close price. The brokerage firm is bullish on the stock in the long run, largely due to the company's Capex plans and the ease in the tariffs.
ICICI Securities, in a research note, said demand prospects remain muted in Gujarat across sectors, be it power or CGD. As a result, contracted transmission flows fell to 27 mmscmd in Q2FY23-TD and are unlikely to gain traction shortly. The lack of traction could be the widening differential between LPG and gas, and the weak economics of gas usage for power at current LNG rates. Nevertheless, ‘use or pay’ charges and some opportunistic trading of cargoes bought in June 2022 at US$30/MMBtu (in an environment of US$40-45/MMBtu spot prices) are likely to help keep earnings resilient over the near term.
In recent months, the reconstituted PNGRB has moved ahead on long-pending issues concerning the GSPL tariff and Capex inclusions. A longer ramp-up is now allowed (10 years vs 5 earlier), likely including the inclusion of system use gas’ (SUG) at 0.2% and allowing the inclusion of expansion capex of some new pipelines.
Citing the management, ICICI Securities said that post the forward movement is seen on the regulatory front, GSPL has 5 projects lined up, big and small, in the following order of priority including Jamnagar-Dwarka pipeline, HPCL Chhara connectivity, expansion project for connecting new capacity at PLNG Dahej to Bhadbhut, Anjar Palanpur, and Swan energy terminal connectivity. Cumulatively, therefore, GSPL has aggressive plans to invest more than ₹20bn in various pipeline expansions and utilisation of even 30% of the expansions can net 20–21mmscmd of transmission volumes by the end of FY25E (vs the current base of 28–32mmscmd).
With a high probability of negligible tariff decline even post the revision order expected in the next few months, GSPL’s standalone business value itself can see an appreciation of Rs40/sh as per our rough-cut estimates. While consolidated earnings may remain muted due to weak demand for both GSPL transmission volumes as well as weaker prospects for subsidiary GGL, at least in FY23E, valuations at 9x FY24E EPS and just 3.2x EV/EBITDA remain extremely skewed towards reward from a risk-reward perspective, according to the brokerage.
Meanwhile, the company's standalone net profit for Q1FY23 came in at ₹235.5, which is just 1.55% compared to the net profit of ₹231.9 crore reported in the same quarter of last year. Revenue from operations fell to ₹485.7 crore in the June-ending quarter from ₹531 crore in the corresponding quarter of last year.
Gujarat State Petronet Limited (GSPL), a Gujarat State Petroleum Corporation Limited (GSPC) subsidiary, has taken a lead in developing energy-transportation infrastructure in Gujarat and connecting major natural gas supply sources and demand markets. GSPL is the first company in India to transport natural gas on an open access basis and is a pure natural gas transmission company. The transmission network of the company envisages the development of a systematic and seamless pipeline network across Gujarat, connecting various suppliers and users.
An average of 18 analysts polled by MintGenie have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
