Moneycontrol Bureau
Kotak Securities advised accumulating Gujarat State Petronet (GSPL), with increased target price at Rs 175 (from Rs 165) on fair valuations. It feels company's growth prospects looks strong on account of both - higher gas transmission volumes and expected upward revision in tariffs.
The brokerage house says higher gas transmission volumes will be supported by lower LNG prices and RLNG demand from industrial sector (like steel).
Additionally, rising city gas distribution growth opportunities, potential shift to natural gas due to environmental/pollution norms (industrial / CNG) and volumes from Mundra LNG terminal (FY18 onwards) adds support to long term volumes, it says.
Kotak expects GSPL's blended tariffs to increase by around 10 percent in FY17 as PNGRB (Petroleum and Natural Gas Regulatory Board) would amend tariff calculation methodology addressing industry concerns.
It further expects GSPL to report an EPS of Rs 8.9 and cash EPS of Rs 12.0 for FY17 and an EPS of Rs 11.1 and cash EPS of Rs.14.4 for FY18. Higher tariffs and volumes will drive 16 percent EPS CAGR over FY16-18, the research firm feels.
GSPL's management is optimistic about tariff hike and has also indicated that hosting of public consultation document by PNGRB is a step in the right direction, and expects the process to be completed in CY17.
Hence, future earnings growth will be supported by margin improvement due to expected tariff hike by PNGRB and continuation of volume growth momentum, Kotak says.
Further, the brokerage house says strong natural gas demand is seen from industrial consumers (i.e. Essar, OPAL & Torrent power) and city gas distribution (CGD) business. Torrent's one mmtpa gas (from Petronet LNG) would flow through GSPL's pipeline provided gas is used in UnoSugen located in Surat. For DGEN, located near Dahej, Torrent has a dedicated line.
Additionally, the company is expanding its wings into new market areas like Saurashtra region and north Gujarat by laying additional 200 kms of natural gas pipeline. Currently, GSPL has around 2500 km of pipeline in Gujarat, it says.
At 11:39 hours IST, the stock was quoting at Rs 164.05, up Rs 0.15, or 0.09 percent on the BSE.
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