This stock surged by whopping 237% in last 5 years: Experts give Buy rating, seen to rise over 14%

Since 2018, markets and majority of stocks have seen bearish sentiments of investors. However, the current March has been quite fruitful for both Sensex and Nifty 50. One stock has seen a massive growth in last few years and has been highlighted by HDFC Securities in its research note. The Gujarat State Petronet Limited (GSPL) has rocketed by a whopping 237% in last 5 years. Nilesh Ghuge and Divya Singhal, analysts at HDFC Securities said, “Till December 2017, Gujarat State Petronet’s (GSPL) stock soared 237% to Rs 226 driven by a positive surprise in transmission volume (+11.5% CAGR). This led to EBITDA expanding at 11.1% CAGR and APAT at 22.4%.”

However, the duo also highlights that, GSPL stock has has corrected ~20% since Dec-17 as investors (1) Perceived the additional 28.4% stake purchase in Gujarat Gas (GGL) as a costly buy, and (2) Anticipated a lower tariff for FY19-23 to be fixed by Petroleum and Natural Gas Regulatory Board (PNGRB) owing to GSPL’s higher than expected volumes in the preceding period.

On Friday, the share price of GSPL was trading at Rs 180.85 per piece slightly higher by 0.44% on Sensex. However, in early openings of Sensex, the stock has touched an intraday high of Rs 184.

According to HDFC Securities, GSPL’s earnings follow a regulatory cycle as PNGRB fixes tariff only once in five years. The 54.16% stake in GGL is not only an investment in a self propelling, quasi-monopolistic and growing City Gas Distribution (CGD) business but it also helps to smoothen out cyclicality. 

Also, contrary to market fears of a low tariff, PNGRB has approved a hike of 27.4% to Rs 1,440/tscm in Sep-18 taking cognizance of the expected 3mmscmd loss in volume (~8.6% of current vols) post the commissioning of RIL’s petcoke gasification plant in 1HFY20, among other factors. 

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Thereby, the duo added, “The company is likely to remain in a sweet spot with its cumulative FCF of Rs 38.2 billion over FY19-23E that will reduce its net debt position to Rs 4.4 billion in FY23E from Rs 26.9 billion in FY18.”

Following which, they said, “We value GSPL’s transmission business using Discounted Cash Flow (DCF) at Rs 120/sh. To this, we add Rs 87/sh as value of its investments in GGL, Sabarmati Gas (30% discount to EV/EBTDA valuation) and other investments (at book value) to arrive at the target price of Rs 207/sh. We initiate with BUY.”

Rs 207 price target will be a new all-time high for GSPL in future. Taking into consideration the current market price, GSPL will give over 14% return to investors.