Stake in Gujarat Gas good for valuation

Industry:    2020-02-05

Gujarat State Petronet (GSPL) has come out of its two-year consolidation range of Rs 232 recently and if history is to repeat, then the stock is expected to give a decent return over the medium term. Analysts are bullish on the stock given its healthy, free cash flows and compelling valuation considering its stake in Gujarat Gas.

GSPL has 54.17 per cent controlling stake in Gujarat Gas which has rallied 50 per cent in the last three months compared to an 11 per cent rise in GSPL shares.

“GSPL’s controlling stake in Gujarat Gas offers a less risky exposure to the latter’s healthy growth prospects in PNG and CNG within Gujarat and the new licence areas won in the recent bidding rounds” said Amit Agarwal, research analyst, Nirmal Bang Equities.

“We are bullish on the stock based on sustained long-term growth outlook in transmission volume, supported by India’s booming natural gas market and compelling valuation that offset concerns over tepid growth over FY21-22 as well as regulatory / policy issues and execution risk” he added.

GSPL stock declined 2 per cent to close at Rs 244.8 on Tuesday. The company has been consistently delivering good numbers and in its latest quarterly result, the company’s profit has shot up to Rs 933 crore, driven by a deferred tax write-back and strong growth in Gujarat Gas. The company has reduced its debt from Rs 5,386 crore in March 2018 to Rs 3,383 crore in September 2019.

 

“At 10 times FY22 estimated earnings, valuations look attractive considering improving volume visibility,” said Rohit Ahuja, analyst, BOB Capital Market.

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