PL Stock Report: Gujarat State Petronet (GUJS IN) - Q1FY24 Result Update - Volume recovery on the horizon - BUY

Gujarat State Petronet (GUJS IN) - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs276 | TP: Rs327

Q1FY24 Result Update - Volume recovery on the horizon

Quick Pointers:

§ Transmission volumes grew 17% QoQ to 29.4 mmscmd led by power and CGD segments

§ Implied tariff at Rs 1,435/mscm was down 8% QoQ

Gujarat State Petronet (GSPL) reported ­­­an EBITDA/PAT of Rs 3.4 bn (+14% Q/Q) and Rs 2.3 bn (+2% Q/Q) respectively. Growth in transmission volumes was primarily seen across CGD and power sector. With decline in gas prices, anticipated increase in LNG capacities and strong demand prospects we remain optimistic on the long term volume growth with an estimated 17.4% CAGR over FY23-FY25. The stock is trading at 14.4x FY25EPS and 9.5x FY25 EV/EBITDA. We estimate a 6.6% CAGR in EPS over FY23-25. The Gujarat government’s new dividend distribution, buyback and bonus share policies bode well for shareholders. We assign a ‘Buy’ rating with a TP of Rs 327. Investments in Gujarat Gas(54.2% stake) and Sabarmati Gas(27.5% stake) at a 25% holding discount provide a valuation of Rs 226, and valuing the core business at 6x FY25EPS at Rs 101, we arrive at our TP of Rs 327.

Transmission volumes growing steadily: GSPL’s topline came in at Rs 3.9bn, up 5% QoQ. The company supplied 29.4 mmscmd of gas volume in Q1, a rise of 17% QoQ on the back of softening domestic gas and LNG prices. Implied tariff for the quarter came in at Rs1,435/mscm.

Sectoral volume performance: Gas supply to city CGD grew 7% QoQ to 9.7mmscmd while the power sector volumes grew remarkably by 3.2x QoQ to 4 mmscmd. However, the company witnessed a maginal degrowth in its refinery/petchem and fertilizer sector volumes. Refinery/petchem volumes degrew 2% QoQ to 6.6 mmscmd, while there was a 4% QoQ degrowth in fertilizer sector volumes at 3.6 mmscmd. Other volumes grew 38% QoQ to 4.9 mmscmd. On a YoY basis, the total volume fell marginally by 0.3%.

Company outlook: Spot LNG prices continue to trade at around US$11/mmbtu while APM prices have been revised from US$8.57/mmbtu to a ceiling of US$6.5/mmbtu for the next two years. The company will benefit from lower gas prices and regain its market share as alternate fuel prices are expected to rise in the coming quarters while gas prices may not rise in tandem with them. Increase in LNG terminal capacities will also aid the company in the long term. We anticipate transmission volumes to likely reach 35 mmscmd in FY25. Implied tariff for FY25 is estimated at Rs 1,374/mscm.

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