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  • Stock recommendation: Gujarat State Petronet Ltd – SELL – TP Rs.182

    Publish date: 1st August, 2018

    Result Update

    Dismal performance: Despite higher gas transmission volume and higher tariffs, GSPL's PAT has declined by 8% qoq due to higher taxes paid, lower other income and higher interest cost.  Lack of tax benefit on interest paid on loan taken for acquisition of Gujarat Gas led to higher tax rate of 41%. We continue to remain worried about its less remunerative/expensive investments in cross-country pipelines, new LNG terminals and city gas distribution.

    Key Highlights

    • GSPL's Q1FY19 result is lower than our estimates. GSPL reported PAT of Rs.1.45 bn, lower 8% qoq mainly on account of higher taxes, higher interest cost and lower other income.
    • GSPL's reported higher gas transmission volume at 36.5 mmscm (8% qoq and 36% yoy). GSPL's volume increased due to higher gas demand from the power sector.
    • GSPL reported marginally better implied tariffs at Rs. 1.14/ scm higher by 1% sequentially.

    Valuation & outlook

    We expect GSPL to report an EPS of Rs.11.2 for FY19E (earlier Rs.12.8) and an EPS of Rs.11 (earlier Rs.13.9) for FY20E. We have lowered our estimates to reflect higher taxes, higher interest cost and lower volumes due to ramp-up of RIL's petcoke gasifiers. Post our previous reduce recommendation the stock has corrected significantly. We do not expect any meaningful upside in the stock in the near future and hence we now recommend SELL (earlier REDUCE) on GSPL with a DCF based unchanged price target of Rs.182/share.


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