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    Kotak finds this midcap stock mispriced. Here's why

    Synopsis

    GSPL’s 2Q EBITDA of Rs 333.8 crore ( down 7% QoQ) was 2% ahead of Kotak Institutional Equities’ estimates. With high gas prices, and also shortfall, the gas supplies to each key segment (except fertiliser) have declined—the worst impacted being the power sector and I&C demand for CGDs (Morbi area, particularly).

    Kotak finds this midcap stock mispriced. Here's whyAgencies

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    Describing stock’s mispricing as glaring, Kotak Institutional Equities Research upgraded Gujarat State Petronet (GSPL) to buy with a target price of Rs 350, which implies an upside potential of 40% from the current market price of Rs 250.

    “We assume a 30% tariff cut, and note that sensitivity to fair value is not high. But, we note that at the current market price, the implied hold-co discount for a 54% stake in Gujarat Gas is 70%. Or put another way, adjusted for GGAS stake, the core business is trading at negative Rs 75 per share,” Kotak Institutional Equities said.

    GSPL’s profit after tax (PAT) declined by 4.9% YoY to Rs 314.21 crore for the September quarter of FY23, though PAT grew 33.44% quarter-on-quarter for the same period.

    GSPL’s 2Q EBITDA of Rs 333.8 crore ( down 7% QoQ) was 2% ahead of Kotak Institutional Equities’ estimates. With high gas prices, and also shortfall, the gas supplies to each key segment (except fertiliser) have declined—the worst impacted being the power sector and I&C demand for CGDs (Morbi area, particularly).

    “We note that since early 2019 (after NGT’s order banning coal gasifiers in Morbi, and the switch of the ceramic industry to natural gas), GSPL’s 54% subsidiary Gujarat Gas has seen a strong volume, earnings growth, leading to a very strong run-up in the GGAS stock,” it said.

    “In our view, such a high discount is excessive and GSPL stock is mispriced. In the past, there have been some investor concerns on issues such as GSPL buying parent GSPC’s 28% stake in Gujarat Gas, likely to bail out parent GSPC, which had a large debt,” it added.

    “For this purchase, GSPL had to borrow over Rs30 billion. We note that over the past few years, with the increased profitability of both GSP and GGAS, GSPL has paid the entire debt. Debt as such is not a worry either for GSPL or its parent or its subsidiary now,” Kotak Institutional Equities said while setting up a target price of Rs 350.

    (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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