Should you buy this debt-free mid-cap stock, which has fallen 34% from the 52-week high?

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View Q4FY22 Results

According to brokerage firm HDFC Securities, “The company’s Q4FY22 EBITDA was 4% lower than our estimate, due to 2% lower-than-expected volume and other higher expenses. However, the ‘APAT was 6% higher than our estimate, supported by – expected personnel costs, gas transmission expenses, depreciation, interest charges and a higher than expected mixed transmission tariff.

“Gas transport volume in the fourth quarter was 29.3 mmscmd (-14% YoY, -8% quarterly) compared to our estimate of 29.7 mmscmd. The volume breakdown in mmscmd was the following: Refinery 8.2, Electricity 1.1, CGD 11.3, Fertilizer 3.4 and Others 5.2. % YoY, +4% QoQ), 2% above our estimate We are reducing our consolidated EPS estimate for FY23/24E by -6.6/-5% to 35.8 INR /30.7, to take into account higher WACC and lower volumes over the DCF forecast period,” HDFC Securities said.

What should investors do?

What should investors do?

According to HDFC Securities “We value transmission activity 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 claimed that “our ADD rating on Gujarat State Petronet with a TP of INR 285 is based on (1) transmission volume increasing to just +2% CAGR on FY22-24E at 35mmscmd due to the environment high spot LNG price driven by geopolitical issues, low global inventories and a recovery in demand after economies reopen and (2) limited near-term upside triggers.Therefore, we believe the stock is currently fairly valued with a RoE of 16% in FY24E and a combined FCF of INR 37 billion in FY22-24E.”

Warning

Warning

The security was selected in the brokerage report of HDFC Securities. Greynium Information Technologies, the author, and the brokerage are not responsible for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.

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