44% Gains Is Possible In This Stock, “Buy” Says Motilal Oswal

Why Motilal Oswal has a buy on the stock of Gujarat State Petronet?

Why Motilal Oswal has a buy on the stock of Gujarat State Petronet?

According to Motilal Oswal, over the last year and a half, Gujarat State Petronet's volumes reached 38-39mmscmd in 1HFY20, there have been continuous investor concerns over the more than optimal utilization rate of its High Pressure Pipeline (HPP) grid.

With an adjustment in lieu of the new tax regime (of 25.17%), the tariff revision became a much larger concern, resulting in a huge de-rating in Gujarat State Petronet's standalone value, the brokerage has said.

"Considering a gradual ramp up in volumes, with new terminal capacity additions in Gujarat, our sensitivity for a 5%/10%/20% tariff cut from current levels of Rs 34/MMBtu results in an EBITDA CAGR of 15%/13%/8% (on the back of 16% volumes CAGR over the same period)," Motilal Oswal has said in its report.

According to Motilal Oswal strict action against usage of industrial pollution would further increase the demand for gas and may result in higher transmission volume than that considered. Non-approval of capital expenditure proposed by GUJS, resulting in a sharp cut in tariff, remains the biggest risk, the brokerage has said.

"The company would turn net cash by the end of FY23E (v/s a net debt of Rs 6.6 billion in FY21), despite annual capital expenditure plans of Rs 7 billion. The stock trades at 16 times FY23E EPS and 10 times FY23E EV/EBITDA (owing to a huge rally in 45% in the last two months). We reiterate our Buy rating," the brokerage has said.

Indian markets close at a new peak, time to be cautious

Though Indian markets closed at a new record high, it maybe time to be a little cautious on the markets.

"Equity markets are likely to continue with its strong positive momentum as the economic activities are expected to further pick up pace with the lockdown measures getting relaxed. The result season is now largely over with corporate earnings being in-line to better than expectations. Going ahead, we expect corporate earnings to improve further as economy opens up and improving vaccination trends.

We estimate Nifty EPS for FY22E/FY23E at INR725/INR862 which implies growth of 35%/19% respectively. Market has been witnessing a rotation from mid to large caps - a phenomena we believe could continue as well in the near term given the sharp outperformance of the broader market in the last 18 months. In terms of sectors we remain positive on IT, Metals, Cement, select BFSI, Consumer, Auto, and Healthcare space," says Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services.

Disclaimer

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