Edelweiss Financial Services has a buy call on Gujarat State Petronet with a target price of Rs 262.The current market price of Gujarat State Petronet is Rs 188.10.Time period given by the brokerage is one year when Gujarat State Petronet price can reach the defined target.
Investment rationale by the brokerage:Demand-supply analysis suggests 5.5 per cent volume CAGR: Our granular analyses of both gas demand and LNG supplies suggest a conservative volume CAGR of 5.5 per cent over the next five years.
Firstly, LNG terminal capacity is poised to more than double over the next five years with GSPL exclusively having access to three of the six terminals in Gujarat.
Secondly, on the demand-side, we expect enhanced demand from city gas distribution (CGD), power and refining to more than offset a 20 per cent fall in volumes on account of startup of RILs petcoke gasifier.
Finally, with the Badmer- Palanpur pipeline slated for commissioning in March 2019, GSPL will be able to reach new markets outside Gujarat, adding 10 per cent to volumes.Healthy FCF to enable net cash balance sheet by FY22E: We expect GSPL to retire the entire Rs 25bn of debt assumed for the Gujarat Gas acquisition by FY22.
With GSPL generating cumulative FCF of Rs 36bn over FY1922E, we expect GSPL to turn net cash by FY22 versus net debt-to-equity of 0.5x currently.Outlook- compelling valuations; maintain BUY: If we strip out value of investments (Gujarat Gas and Sabarmati Gas), valuations are highly compelling at 5.5x FY20E PER.
Even on an unadjusted basis, GSPL quotes at a a 26 per cent/31 per cent discount to India gas/global pipeline peer group average PER.
We maintain BUY on GSPL with a revised target price of Rs 262/share.