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GSPL reported higher-than-expected numbers for 3QFY2011 due to higher
tariffs, lower opex and depreciation cost (due to change in depreciation rate from
8.33% to 4.75% w.e.f. April 1, 2010) during the quarter. Thus, the bottom line
surged by 37.9% yoy to `159.1cr (`115.4cr), which was much above our
expectation of `93.5cr. Given the company’s strong growth potential,
we recommend Accumulate on the stock.
Transmission volume flat, realisation higher: In 3QFY2011, GSPL recorded a
4.0% yoy increase in revenue to `279cr (`268cr), which was above our
expectation of `257cr. Transmission volume, which stood flat at 35.3mmscmd
(35.1mmscmd), came in marginally below our expectation of 36mmscmd.
Average transmission realisation increased (due to long-distance transmission of
gas) by 3.4% yoy to `859/’000scm (`831/’000scm), higher than our expectation
of `775/’000scm.
Outlook and valuation: Although GSPL is a leveraged play on increasing gas
demand in Gujarat (the country’s hydrocarbon capital), slower ramp up in
domestic production from the KG D6 field and expensive spot LNG are taking a
toll on the company’s volume visibility in the near term. This has resulted in the
stock’s under performance in the recent past. We estimate GSPL’s transmission
volume to register an 11.8% CAGR over FY2010–12, up from 32mmscmd to
40mmscmd. We have valued GSPL (in line with the multiple given to GAIL) at 7x
FY2012E EBITDA, which provides a Target Price of `105 (earlier `128) for the
stock, implying an upside of 7.6% from the current level.
OPM above expectations on higher tariff and lower opex; expands by 207bp qoq:
Staff cost during the quarter stood flat qoq at `4.1cr (`4.2cr). O&M expenses
decreased by 6.9% qoq to `9cr (`9.6cr) and were in line with our expectation,
whereas administrative and other charges fell by 40.2% qoq to `4.2cr (`7cr), much
lower than our expectation of `6.5cr. Thus, lower-than-expected opex and higher
tariff resulted in OPM expanding by 207bp qoq to 93.8% (91.8%), above our
expectation of 92.4%. As a result, EBITDA registered 12.8% qoq and 3.5% yoy
growth to `262cr during 3QFY2011.
Depreciation decreases on change in depreciation rate retrospectively; interest
expenditure rises: During the quarter, GSPL changed its depreciation rate from
8.33% to 4.75% retrospectively w.e.f. April 1, 2010. As a result, depreciation cost
for 9MFY2011 and 3QFY2011 stood lower by `75.5cr and `25cr, respectively.
During the quarter, depreciation cost fell by 95.7% yoy `2.5cr (`59.6cr) and was
drastically below our expectation of `78cr. However, interest expenditure rose by
18.8% yoy and 7% qoq to `25.9cr.
PAT above expectation, surges 37.9%: Other income rose by 62.9% yoy to `5.4cr
(`3.3cr). However, on a sequential basis, other income fell by 35.4% from `8.3cr
in 2QFY2011. Effective tax rate during the quarter fell to 33.4% (34.1%) v/s higher
effective tax rate of 34.8% registered in 2QFY2011. Thus, due to higher tariffs,
lower opex and depreciation cost during the quarter, the bottom line surged by
37.9% yoy to `159.1cr (`115.4cr), much above our expectation of `93.5cr.
Investment arguments
Tariff decline risk captured in valuations: Transmission tariff is one of the biggest
variables affecting GSPL's valuations. We believe tariffs are unlikely to fall below
`0.75/scm levels in FY2012E and beyond. Competitive tariffs coupled with low
volume flows had resulted in low RoCE of 7–10% during FY2003–09, which was
lower than the mandated PNGRB's regulated IRR of 12% on pipeline projects. Thus,
on account of the same, GSPL's network was unable to get the mandated returns.
New pipelines to open up growth vistas: GSPL now seeks to expand its
operations beyond the state. In wake of the same, GSPL has submitted Expression
of Interest (EoIs) for four inter-state pipelines. These pipelines will have a combined
length of 5,675km. According to media reports, the company has won two new
inter-state pipelines, viz. Mallavaram-Bhilwara and Mehsana-Bhatinda. We are
currently not building in any upside from these pipelines, as implementation will
take at least four to five years. Moreover, we await more clarity on the gas source
for these pipelines (particularly for the Mallavaram-Bhilwara pipeline). However,
we believe winning these pipelines resolves the scalability issues for the company
beyond Gujarat
Outlook and valuation
Although, GSPL is a leveraged play on increasing gas demand in Gujarat (the
country’s hydrocarbon capital), slower ramp up in domestic production from the
KG D6 field and expensive spot LNG are taking a toll on the company’s volume
visibility in the near term. This has resulted in the stock’s under performance in the
recent past.
Thus, we have revised our FY2011 and FY2012 numbers to account for lowerthan-
expected production from KG D6. We expect GSPL to register transmission
volume of 40mmscmd in FY2012 aided by higher spot volumes. With this, we
estimate the company’s transmission volume to register an 11.8% CAGR over
FY2010–12, up from 32mmscmd to 40mmscmd. We have also given effect to
change in depreciation policy being planned, which is to be adopted by the
company. Considering that, we have taken 4.75% depreciation rate for FY2011
and expect it to further be revised to 3.17% in FY2012 only, as the company needs
to take approval from the ministry, which may take time.
We have valued GSPL (in line with the multiple given to GAIL) at 7x FY2012E
EBITDA, which provides a Target Price of `105 (earlier `128) for the stock,
implying an upside of 7.6% from the current level. Hence, we recommend an
Accumulate rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GSPL – 3QFY2011 Result Update
Angel Broking recommends an Accumulate on GSPL with a Target Price of Rs. 105.
GSPL reported higher-than-expected numbers for 3QFY2011 due to higher
tariffs, lower opex and depreciation cost (due to change in depreciation rate from
8.33% to 4.75% w.e.f. April 1, 2010) during the quarter. Thus, the bottom line
surged by 37.9% yoy to `159.1cr (`115.4cr), which was much above our
expectation of `93.5cr. Given the company’s strong growth potential,
we recommend Accumulate on the stock.
Transmission volume flat, realisation higher: In 3QFY2011, GSPL recorded a
4.0% yoy increase in revenue to `279cr (`268cr), which was above our
expectation of `257cr. Transmission volume, which stood flat at 35.3mmscmd
(35.1mmscmd), came in marginally below our expectation of 36mmscmd.
Average transmission realisation increased (due to long-distance transmission of
gas) by 3.4% yoy to `859/’000scm (`831/’000scm), higher than our expectation
of `775/’000scm.
Outlook and valuation: Although GSPL is a leveraged play on increasing gas
demand in Gujarat (the country’s hydrocarbon capital), slower ramp up in
domestic production from the KG D6 field and expensive spot LNG are taking a
toll on the company’s volume visibility in the near term. This has resulted in the
stock’s under performance in the recent past. We estimate GSPL’s transmission
volume to register an 11.8% CAGR over FY2010–12, up from 32mmscmd to
40mmscmd. We have valued GSPL (in line with the multiple given to GAIL) at 7x
FY2012E EBITDA, which provides a Target Price of `105 (earlier `128) for the
stock, implying an upside of 7.6% from the current level.
Higher tariff leads to above-expectation top-line growth: In 3QFY2011, GSPL
recorded a 4% yoy increase in revenue to `279cr (`268cr), which was above our
expectation of `257cr. Transmission volume stood flat, whereas average tariff rose
by 3.4% yoy (higher growth of 10.3% on a sequential basis). Transmission volume
during the quarter stood flat at 35.3mmscmd (35.1mmscmd), which was
marginally lower than our expectation of 36mmscmd. Volume also stood flat on a
qoq basis (35.3mmscmd in 2QFY2011) due to lower production from KG D6,
which to an extent was offset by higher spot LNG volumes. Tariff stood higher yoy
at `859/’000scm (`831/’000scm), registering an increase of 3.4%. On a qoq
basis as well, tariff rose by 10.3% due to long-distance transmission of gas.
OPM above expectations on higher tariff and lower opex; expands by 207bp qoq:
Staff cost during the quarter stood flat qoq at `4.1cr (`4.2cr). O&M expenses
decreased by 6.9% qoq to `9cr (`9.6cr) and were in line with our expectation,
whereas administrative and other charges fell by 40.2% qoq to `4.2cr (`7cr), much
lower than our expectation of `6.5cr. Thus, lower-than-expected opex and higher
tariff resulted in OPM expanding by 207bp qoq to 93.8% (91.8%), above our
expectation of 92.4%. As a result, EBITDA registered 12.8% qoq and 3.5% yoy
growth to `262cr during 3QFY2011.
Depreciation decreases on change in depreciation rate retrospectively; interest
expenditure rises: During the quarter, GSPL changed its depreciation rate from
8.33% to 4.75% retrospectively w.e.f. April 1, 2010. As a result, depreciation cost
for 9MFY2011 and 3QFY2011 stood lower by `75.5cr and `25cr, respectively.
During the quarter, depreciation cost fell by 95.7% yoy `2.5cr (`59.6cr) and was
drastically below our expectation of `78cr. However, interest expenditure rose by
18.8% yoy and 7% qoq to `25.9cr.
PAT above expectation, surges 37.9%: Other income rose by 62.9% yoy to `5.4cr
(`3.3cr). However, on a sequential basis, other income fell by 35.4% from `8.3cr
in 2QFY2011. Effective tax rate during the quarter fell to 33.4% (34.1%) v/s higher
effective tax rate of 34.8% registered in 2QFY2011. Thus, due to higher tariffs,
lower opex and depreciation cost during the quarter, the bottom line surged by
37.9% yoy to `159.1cr (`115.4cr), much above our expectation of `93.5cr.
Investment arguments
Tariff decline risk captured in valuations: Transmission tariff is one of the biggest
variables affecting GSPL's valuations. We believe tariffs are unlikely to fall below
`0.75/scm levels in FY2012E and beyond. Competitive tariffs coupled with low
volume flows had resulted in low RoCE of 7–10% during FY2003–09, which was
lower than the mandated PNGRB's regulated IRR of 12% on pipeline projects. Thus,
on account of the same, GSPL's network was unable to get the mandated returns.
New pipelines to open up growth vistas: GSPL now seeks to expand its
operations beyond the state. In wake of the same, GSPL has submitted Expression
of Interest (EoIs) for four inter-state pipelines. These pipelines will have a combined
length of 5,675km. According to media reports, the company has won two new
inter-state pipelines, viz. Mallavaram-Bhilwara and Mehsana-Bhatinda. We are
currently not building in any upside from these pipelines, as implementation will
take at least four to five years. Moreover, we await more clarity on the gas source
for these pipelines (particularly for the Mallavaram-Bhilwara pipeline). However,
we believe winning these pipelines resolves the scalability issues for the company
beyond Gujarat
Outlook and valuation
Although, GSPL is a leveraged play on increasing gas demand in Gujarat (the
country’s hydrocarbon capital), slower ramp up in domestic production from the
KG D6 field and expensive spot LNG are taking a toll on the company’s volume
visibility in the near term. This has resulted in the stock’s under performance in the
recent past.
Thus, we have revised our FY2011 and FY2012 numbers to account for lowerthan-
expected production from KG D6. We expect GSPL to register transmission
volume of 40mmscmd in FY2012 aided by higher spot volumes. With this, we
estimate the company’s transmission volume to register an 11.8% CAGR over
FY2010–12, up from 32mmscmd to 40mmscmd. We have also given effect to
change in depreciation policy being planned, which is to be adopted by the
company. Considering that, we have taken 4.75% depreciation rate for FY2011
and expect it to further be revised to 3.17% in FY2012 only, as the company needs
to take approval from the ministry, which may take time.
We have valued GSPL (in line with the multiple given to GAIL) at 7x FY2012E
EBITDA, which provides a Target Price of `105 (earlier `128) for the stock,
implying an upside of 7.6% from the current level. Hence, we recommend an
Accumulate rating on the stock.
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