Ask RJ - GSPL

ASK Raymond James, in a report released on March 8, has upgraded its rating on Gujarat State Petronet to BUY from HOLD.

The report said: "In Budget 2007, the government has awarded infrastructure status to companies that lay and operate natural gas pipel ines. We believe this to be a key positive for Gujarat State Petronet (GSPL) resulting in tax savings for new pipeline contracts (starting with RIL contract from FY09).

"In addition to this, Shell has recently announced that it would be landing 24 LNG cargos at its Hazira terminal in FY08 resulting in increased volumes for GSPL. We have accordingly revised our earnings estimates upwards by 39% to Rs3.2 (Rs2.3 earlier) in FY08E and Rs3.6 in FY09E (Rs3.3 earlier) led by 65% growth in volumes in FY08 and tax rate coming down to 25% in FY09. We expect 38.6% CAGR growth in revenues over FY06-09E and 61.8% CAGR growth in PAT (based on our revised estimates) over the same period.

"The stock trades at 14x revised FY08E earnings and 12.3x revised FY09E earnings. We have revised our 1-year price target to Rs60 (DCF value at 11.9% WACC and 2% terminal growth rate) from Rs53 earlier. We are accordingly upgrading GSPL from Hold to Buy."

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