We reiterate our buy rating on Gujarat State Petronet (GSPL) and value the stock using a DCF methodology, assuming a WACC of 11.6% and a terminal growth rate of 2.5%. Our DCF model covers cash flows from FY15f to FY25f. Our DCF-based target price is R70 per share.
Gujarat Gas has released the composite scheme of amalgamation and arrangement for amalgamation of Gujarat Gas (and subsidiaries), GSPC Gas and GSPC Distribution Networks (GDNL). GSPL owns a 39% stake in GDNL and 29% in GSPC Gas.
Based on the approved swap ratio, GSPL with be the second largest shareholder (after GSPC) in the merged entity GDNL with 25.8% stake. In our view, listing of merged entity GDNL will provide a value unlocking for GSPL. On our estimates, at the current price, this investment can be valued at R18-23 per a of GSPL (currently we do not assign much value to this investment).
GSPL's PAT of R91.5 crore was largely in line with our estimates (R93 crore), but 8% below Bloomberg consensus (R99.3 crore). After continued declines over last several quarters, gas transmission volumes at 20.8 mmsmcd increased 3% sequentially. Realised average tariff at R1.2 per scm (our estimate R1.27 per scm) declined 6% sequentially.