Broking firm, Motilal Oswal has recommended buying the stocks of Gujarat State Petronet and Indian Hotels. The brokerage sees a significant upside on both the stocks, even as the index has hit a new record high.
Stocks to buy: Gujarat State Petronet
|Current market price||Rs 335|
|Projected price||Rs 500|
According to Motilal Oswal, Gujarat State Petronet reported a marginally higher (+5%) transmission volume than its own estimate at 36.8 mmscmd (+11% YoY and +9% QoQ), with implied tariff at Rs 1,282/mscm. Demand recovery from the refining and petrochemicals segment offset a weak demand from CGDs, while demand from the Power sector recovered quarter-on-quarter.
Gujarat State Petronet: Strong growth likely
Motilal Oswal believes that the company can easily record an 8-10% CAGR in transmission volumes over the next 5-6 years (in line with the 10% volume CAGR over the last five years).
Since Gujarat State Petronet is currently operating at 90-95% utilization rate, the company needs to incur a capital expenditure of Rs 45.4 billion to accommodate the rise in volume. This would ensure that tariffs are not cut for the HP gas grid. The stock trades at 16 times FY23E EPS of Rs 20 and 10x FY23E EV/EBITDA. We maintain our Buy rating with a target price of Rs 500 per share," Motilal Oswal has said in a report.
The firm has also noted the investments in Gujarat Gas and Sabarmati Gas, at a 25% holding discount, offer a valuation of Rs 360 (after a huge run up of 45% in Gujarat Gas' share prices over the last two months).
"Valuing the core at 7x adjusted Sep'23E EPS of Rs 20 and adding the value of investments, we arrive at a valuation of Rs 500 per share. Buy the stock, " the brokerage has said.
Indian Hotels: Buy for an upside target of 28%
|Current market price||Rs 142.65|
|Projected price||Rs 183|
Motilal Oswal has suggesting buying the stock of Indian Hotels and sees an upside potential of as much as 28% from current levels.
"Faster demand revival in the Leisure Travel segment has aided Indian Hotel's performance in FY21. The second COVID wave has delayed recovery in the Hospitality sector. However, the impact this time is less severe and the recovery is quick when compared with last time," the brokerage has said.
According to the brokerage, new revenue generating avenues have a higher EBITDA margin, and this is being done without deploying capital or with very minimal capital, which bodes well for the returns on capital employed.
"Revenue/EBITDA in 1QFY22 was above our estimate. Factoring the same, we have increased our FY22E revenue/EBITDA estimate by 2%/4%, and have maintained our estimate for FY23E. We maintain our Buy rating on the stock, with a Sept'23E SoTP-based target price of Rs 183," the brokerage has said.
The 2 stocks or mentioned above are taken from brokerage report of Motilal Oswal institutional Equities. Investments mentioned here need not be construed as investment advice, the company and the author shall not be responsible for any decisions taken based on the above report. Investors are advised caution as the markets are now at a new historic peak.