Gas upside priced in
Increased volumes – but mainly from RLNG
The increase in domestic gas availability over the past year has
provided relief for Gujarat Gas’s volumes, which had declined over the
past two years. Current volumes at ~3.5mmscmd are ~35% higher
than the lows of 2.6mmscmd seen in 1Q09. However, Gujarat Gas did
not benefit from KG-D6 gas — it was not allocated any gas on a firm
basis, and none is available to it now from the fallback allocation of
0.6 mmscmd. As a result, the company must resort to buying highercost
LNG and recently entered into an agreement with its parent
British Gas to purchase 0.5mmscmd RLNG on a firm basis for 39
months beginning 1 October 2010.
Easing regulatory concerns
Notification of Section 16 of the PNGRB Act is a positive development.
The authorisation process for GGAS’ existing network that was nearly
stalled due to regulatory chaos should now gather pace and is
positive for GGAS, in our view.
Four new areas of Gujarat are up for bidding
The Petroleum and Natural Gas Regulatory Board (PNGRB) has
identified four new areas of Gujarat — Bhavnagar, Jamnagar, Kutch-
East and Kutch-West — for the third round of city gas distribution
(CGD) bidding (bid submission date: 3 December 2010). We believe
Gujarat Gas will likely bid for most of them. Any success in these is
critical for meaningful further volume growth medium term, in our view.
Sharp recent run; maintain REDUCE
Our primary concern regarding Gujarat Gas is limited volume upside
owing to network maturity and the current lack of domestic gas
availability. After a recent sharp run (GGAS has outperformed the
BSE200 by 15%/17%/58% over 3M/6M/12M), we still think valuations
are stretched at 19.4x CY11F P/E and 11.4x CY11F EV/EBITDA.
No comments:
Post a Comment