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Should You Buy This Debt Free Mid Cap Stock Fallen 34% From 52-Week high?

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Gujarat State Petronet Ltd is a mid-cap company in the gas & petroleum sector with a market worth of Rs 14,122.21 crore. With a debt to equity ratio of 0.09, the company is almost debt-free, and it has reached a 52-week high of Rs 379.20 on August 20, 2021, and a 52-week low of Rs 249.75 on May 6, 2022, indicating that the stock has declined 34% from its 52-week high and is currently trading at Rs 249.30. The company has a solid return on equity (ROE) track record, with roughly 29% in the previous three years, but do all of these aspects trigger the stocks to buy?

 

View on the Q4FY22 results

View on the Q4FY22 results

As per the brokerage firm HDFC Securities, the company's "Q4FY22 EBITDA came 4% below our estimates, owing to 2% lower-than-expected volume and higher other expenses. However, APAT was 6% above our estimate, supported by lower-than-expected employee cost, gas transmission expenses, depreciation, interest cost, and higher-than expected blended transmission tariff."

"Gas transmission volume in Q4 was 29.3mmscmd (-14% YoY, -8% QoQ) vs our estimate of 29.7mmscmd. Volume break-up in mmscmd was: refinery 8.2, power 1.1, CGD 11.3, fertilizers 3.4, and others 5.2. Calculated blended transmission tariff for Q4 stood at INR 1,394/tscm (+9% YoY, +4% QoQ), 2% above our estimate. We reduce our FY23/24E consolidated EPS estimates by -6.6/-5% to INR 35.8/30.7, to factor higher WACC and lower volumes over the DCF forecast period," said HDFC Securities.

What should investors do?
 

What should investors do?

According to HDFC Securities "We value the transmission business using discounted cash flow (DCF) at INR 75/sh (WACC of 11% and terminal growth rate of 3%). To this, we add INR 210/sh as the value of its investments in Gujarat Gas, Sabarmati Gas, etc. to arrive at a target price of INR 285/sh. The stock is trading at 8.7x FY24E PER."

The brokerage has claimed that "Our ADD rating on Gujarat State Petronet with a TP of INR 285 is premised on (1) transmission volume growing at only +2% CAGR over FY22-24E to 35mmscmd due to high spot LNG price environment driven by geopolitical issues, low global inventories, and pick-up in demand post reopening of economies and (2) limited upside triggers in the near term. Hence, we believe that the stock is currently fairly valued with an RoE of 16% in FY24E and combined FCF of INR 37bn over FY22-24E."

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.

Read more about: stocks to buy
Story first published: Saturday, May 14, 2022, 8:31 [IST]
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