Gujarat Gas - Merger To Simplify Structure With Deeper Value: Systematix

Systematix Research Report

The Gujarat State Petroleum Corp. Group has unveiled a major merger where GSPC and Gujarat State Petronet Ltd. will be merged with Gujarat Gas Ltd. and would spin-off its transmission network into a separate company, GSPL Transmission Ltd .

This is primarily to simplify the shareholding structure, reduce the holding discount of GSPL’s holding of Gujarat Gas, and gain the benefit of accumulated losses. GSPC and GSPL will be merged with GGL at a swap ratio of 10 GGL shares for every 305 GSPC’s share and 10 shares of Gujarat Gas for every 13 shares of GSPL.

GTL will also spin-off at a swap ratio and Gujarat Gas’ shareholders will get one share of GTL for every three shares of GGL. Post restructuring Gujarat Government (promoter’s stake) in GGL would reduce from current 60.9% to 25.8%, with 36% dilution.

At current prices, swap ratio is 5% favorable to Gujarat State Petronet while neutral to Gujarat Gas.

GSPC is valued at an enterprise value/Ebitda of 6.8 times on FY24 Ebitda while GSPL's core business is valued at Rs35bn and cash and investments at ~Rs 265 billion.

With the merger, we raise the target price to Rs 587/share from earlier Rs 456/share. Therefore, we upgrade the stock to Hold from an earlier Sell.

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