Visit http://indiaer.blogspot.com/ for complete details Pipeline wins give good long-term growth visibility
Two large cross-country pipeline wins
According to recent media reports, a Gujarat State Petronet
(GSPL)-led consortium has won both the Mallavaram-Bhilwara
and Mehsana-Bhatinda pipelines. This is likely to increase
GSPL’s pipeline network by almost 2.5x to around 5,500km.
We believe this win provides much-needed long-term growth
visibility for the company, and increases the sphere of its
operations beyond its home state of Gujarat.
Bid details would determine value accretion
The winning bid details (tariff and committed volumes) have not
yet been disclosed. Both of these parameters are key to
determining the value that could accrue from the pipelines.
Under our assumptions for tariff and capacity, we estimate they
could add Rs8-10 to our target price. We believe that issues such
as source of gas supplies, funding pattern and tariff levels are
likely to be key issues for investors.
Stock should continue to outperform
Our current valuation of GSPL does not include the value from
the new pipelines. We maintain our 1 (Buy) rating and six-month
target price of Rs127, based on DCF methodology with a
WACC of 10.2% and a terminal-growth rate of 2%. Our
terminal-year volume assumption is 55mmscmd, with a tariff of
Rs780/tscm.
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