Buy This Energy Stock For Whopping Gains Of More Than 66%: ICICI Securities

ICICI Securities, a leading brokerage firm in India, has given a buy call for a mid-cap stock from the energy sector. The brokerage firm has given a "BUY" rating for Gujarat State Petronet Ltd with a target price of Rs. 375.

The company's stock price has been trading positively in the recent trading sessions; however, in the larger time frame, the overall trend of Gujarat State Petronet Ltd is a downtrend. However, ICICI Securities' latest report suggests the stock has the potential for an upside of more than 66% from the current market price.

Outlook of Gujarat State Petronet Ltd (GSPL)

A public limited company, Gujarat State Petronet Limited, was established by the Companies Act of 1956. It is also a government company, according to Section 2(45) of the Companies Act of 2013.

The main business of Gujarat State Petronet Limited and the company's subsidiaries is Natural gas pipeline transmission. Additionally, it is in the business of installing and running city gas distribution systems and producing power using wind turbines.

The company has the second largest gas transmission pipeline network, over 2,694 km long, connecting various cities from Vapi to Jafrabad.

Outlook of Gujarat State Petronet Ltd Stock Price

Gujarat State Petronet Ltd is a leading mid-cap company with over Rs. 12,709 Crores market capitalization. The current market price of the stock is Rs. 225, the all-time high of the stock is Rs. 336, and the all-time low is Rs. 209.

The company has good numbers in terms of Return On Equity and Return Of Capital Employed, which are 29% and 32%, respectively, over the 5 years. However, it needs a better returns record over the short-term, mid-term and long-term investments. In one year, the stock gave negative returns of -29.88%. In 3 years, the stock gave 3.04% returns; in five years, the stock gave a 17.01% return.

Valuation And Buy Call Of ICICI Securities For Gujarat State Petronet

As mentioned in the latest report of ICICI Securities, "We value GSPL's core business by the DCF methodology, using a WACC of 11.2%, DER of 20%, long-term EBITDA assumption of Rs0.99/scm and terminal growth rate of 0.9%. This is complemented by the addition of GGL stake valued at 30% discount to our estimated fair value of Rs535/sh - this delivers a target price of Rs375/sh for GSPL, offering 69% upside from the current market price."

To summarize the report in the headline, ICICI Securities mentioned, "Weak demand, but tariff and expansion issues to be resolved over FY23E."

Key Risks For Taking a Buy Call Of ICICI Securities

As per the report of ICICI Securities, there are three possible risks on the buy call. The report says,

• "Sharper decline in transmission volumes even from current levels.
• Longer delay in getting all regulatory clearances for the new pipelines and announcement of the revised tariff order.
• Sharper than expected tariff decline in the new tariff order."

Disclaimer

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