Buy Gujarat State Petronet says Nomura research

Looking beyond Gujarat
 Spreading lines – getting bigger in Gujarat
GSPL is now present in 16 of 26 districts of Gujarat, with its
~1,666kms of gas grid — and that is not all. It plans to expand further
by constructing ~1,100kms of pipelines in the next two to three years.
After sharp growth in volume last year, volume growth is likely to
moderate. Still, we expect significant volume growth as new pipelines
are completed and new customers are added.
 Cross-country pipelines – possible bonus
GSPL’s consortium with oil marketing companies (GSPL – 52%) has
emerged as the only player to have submitted to the PNGRB bids for
all three long-distance pipelines. We think a favourable outcome in
bidding could be a near-term trigger. Decisions are expected in the
coming weeks.
 Regulatory concerns eased, new tariffs to follow
Since notification of section-16 of the PNGRB act, the authorisation
process for GSPL’s gas grid is on a fast track. GSPL has submitted
for 2,425kms of network authorisation. Tariff fixation by the regulator
will be the next step. We continue to believe GSPL’s existing average
tariffs are unlikely to fall, as these are distance-based (as required in
PNGRB regulations) and GSPL is incurring large capex to augment its
network.
 We continue to prefer GSPL to GAIL
Our DCF based PT is INR150/share. We value GSPL’s 37% stake in
GSPC Gas and 14% stake in Sabarmati Gas only at book value. We
continue to prefer GSPL to GAIL. GSPL trades at 6.6x FY12F
EV/EBITDA, compared with 10x for GAIL.