Gujarat State Petronet gains 2% post Q1 results; brokerages maintain ‘buy’

Shares of Gujarat State Petronet Ltd gains over 2 percent to Rs 281.90 on August 7 in early morning trade at 10:10 am.

The company released its earnings for the first quarter of FY24 on August 4. The company’s consolidated net profit fell over 20 percent year on year (YoY) to Rs 434 crore in the June 2023 quarter as against Rs 648 crore in Q1FY23.

The natural gas distributor has reported total income of Rs 4,290.87 crore during the period ended June 30, 2023 down 24.61 percent YoY as compared to Rs 5,691.46 crore during the period ended June 30, 2022.

The financial performance is lower than expected owing to lower realization led by price cuts taken by the company. The price cuts also impacted the gross margins for the company.

Sales volume is on a bright spot and indicated growth sequentially. Gas sales volume grew 4 percent QoQ to 9.22 mmscmd driven by industrial volumes which increased 9.7 percent QoQ due to softer spot LNG prices. CNG volumes too grew 3.2 percent QoQ to 2.6 mmscmd. The company however, saw 28 percent QoQ decline in domestic PNG volumes while commercial PNG volumes declined 7.1 percent QoQ.

HDFC Securities gave an “ADD” rating on the GSPL scrip with a target price of Rs 315, citing the recovery in transmission volumes after a 25 percent decline in volume seen in FY23 due to high spot LNG prices, geopolitical issues, and low inventories, as well as limited upside triggers in the near term. The brokerage firm believes that the stock is currently fairly valued, with a return on equity (ROE) of 15.9/14.9 percent in FY24/25E and a combined free cash flow (FCF) of Rs 2,300 crore over FY23-25E.

JM Financial also maintained a Buy rating on GSPL with a revised target price of Rs 345. GSPL’s 1QFY24 standalone EBITDA was Rs 3,400 crore, 3.7 percent above JM Financial’s consensus, attributed to slightly higher transmission volume and margin. The brokerage house believes that most of GSPL’s value is driven from its stake in Gujarat Gas, whose volume growth they are expecting to sustain in the medium to long term.

In terms of capital expenditure, the company undertook Rs 200-250 crore in Q1 and guided for further Rs 1,000-1,200 crore per annum for the next three years, to be funded through internal accruals, which is expected to strengthen the company’s fundamentals.

Gujarat State Petronet Limited, along with its subsidiaries, is primarily engaged in the transmission of natural gas through pipelines.

Additionally, it is involved in the implementation and operation of City Gas Distribution and the generation of electricity through windmills.

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