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Gujarat State Petronet (Buy)
Target: ₹345
CMP: ₹307.55
Gujarat State Petronet has reported earnings in Q4-FY21 stood in line with estimates, on account of anticipated drop in gas throughput. The gas throughput remains impacted in Q1-FY22 as well, as Covid second wave impacts demand.
CGD segment is the most impacted, with nearly 30 per cent q-o-q erosion in demand, along with the Power segment (q-o-q decline of 30 - 40 per cent), where higher LNG prices have impacted off-take. However going ahead, improvement is expected, as demand picks up at least from CGD sector.
GSPL has classified its CGD business in Amritsar and Bhatinda as discontinued operation and transferred the same to its subsidiary Gujarat Gas Ltd for a consideration of ₹1,630 crore, on slump sale basis. Besides, Gujarat Gas has declared a dividend of ₹2/share for the year FY21.
We accordingly adjust our earnings estimate for FY22 and FY23 to reflect the same.
We maintain our Buy rating on GSPL, with a target price of ₹345, as we believe that at CMP the standalone business is available at a nearly 50 per cent discount to fair value, given that the valuation of GSPL's subsidiary Gujarat Gas has increased by 117 per cent over last one year.
Our SOTP valuation of ₹345 involves: valuing the standalone business at ₹119, implying a P/E of 8x FY23 (SA); the investment in Gujarat Gas at ₹211 valued at 40 per cent discount to 3M average market price; investment in Sabarmati gas at 3.0x FY20 BV; and investment in under construction trunk pipelines GIGL & GITL at 30 per cent discount to FY20BV.
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