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Gujarat State Petronet Ltd
Cut EPS and PO on cut in volumes and cash profit
Cut in depreciation boosts 3Q and 9M profit; Retain Buy
3Q FY11 net profit of Gujarat State Petronet Ltd (GSPL) at Rs1.6bn is up 38%
YoY. 3Q EBITDA is up just 4% YoY but profit growth is stronger due to
depreciation being 96% YoY lower. Depreciation rate on pipelines has been cut
from 8.33% to 4.75% w.e.f April 2010. Depreciation rate is likely to be further cut
to 3.17% latest by FY12E. GSPL’s 9M profit is 17% YoY higher despite EBITDA
rise of just 7% YoY as depreciation is 15% YoY lower. We have cut GSPL’s
FY12E-13E EPS by 1-9% and PO by 13% due to cut in gas transmission
volumes. Revised PO implies 41% potential upside. We retain Buy on GSPL.
3Q transmission tariff up 3% YoY and 10% QoQ; volumes flat
3Q EBITDA is 4% YoY higher driven by 3% YoY rise in tariff to Rs860/mscm. 3Q
FY11 tariff is also 10% QoQ higher from Rs778/mscm in 2Q FY11. Transmission
volumes at 35mmscmd are flat QoQ and YoY.
FY12-13E EPS cut by 1-9%; PO cut by 13% at Rs130/share
GSPL’s gas growth in 9M is below expectation. We have consequently cut
GSPL’s gas transmission volumes for FY11E by 12% to 36mmscmd and for
FY12-FY13E by 7-16% to 40.5-44.5mmscmd. We have also cut GSPL’s FY11-
FY13E depreciation by 39-54% following the cut in depreciation rate on pipelines.
We are assuming depreciation rate on pipelines at 4.75% in FY11E and 3.17% in
FY12-FY13E. The net impact of these changes is marginal rise in FY11E
earnings and 1-9% cut in FY12E-FY13E EPS. GSPL is going to seek company
law board permission to cut depreciation rate on pipelines to 3.17%. The
permission may come before 4Q results are announced or in FY12E. If it gets
permission in FY11E, FY11E EPS would be 7% higher at Rs8.9. We have also
cut GSPL’s PO by 13% to Rs130/share from Rs149/share to factor in impact of
cut in volumes and cash profit.
Price objective basis & risk
Gujarat State Petronet Ltd (GJRSF)
Our PO of GSPL is Rs130/share. This includes Rs94/share as DCF value of
GSPL existing gas pipeline network in Gujarat. PO also includes Rs36/share as
value of Mallavaram-Bhilwara, Mehsana-Bhatinda and Bhatinda-Jammu pipeline
for which it has won bid. WACC is 10pct based on 11.5pct cost of equity, 9.5pct
cost of debt, 17pct tax and debt-equity of 67pct. We have assumed gas
transmission volume CAGR of 11.6pct in FY10-FY13E. Gas transmission tariff is
assumed to decline at a CAGR of 3% in FY10-FY13E. We prefer DCF to value
GSPL. Downside risks: 1) Regulatory risk in the form of regulator requiring GSPL
to cut tariff. 2) Lower than expected gas transmission volumes 3) NPV of
Mallavaram-Bhilwara, Mehsana-Bhatinda and Bhatinda-Jammu pipelines being
lower than assumed (bid details not available)
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Gujarat State Petronet Ltd
Cut EPS and PO on cut in volumes and cash profit
Cut in depreciation boosts 3Q and 9M profit; Retain Buy
3Q FY11 net profit of Gujarat State Petronet Ltd (GSPL) at Rs1.6bn is up 38%
YoY. 3Q EBITDA is up just 4% YoY but profit growth is stronger due to
depreciation being 96% YoY lower. Depreciation rate on pipelines has been cut
from 8.33% to 4.75% w.e.f April 2010. Depreciation rate is likely to be further cut
to 3.17% latest by FY12E. GSPL’s 9M profit is 17% YoY higher despite EBITDA
rise of just 7% YoY as depreciation is 15% YoY lower. We have cut GSPL’s
FY12E-13E EPS by 1-9% and PO by 13% due to cut in gas transmission
volumes. Revised PO implies 41% potential upside. We retain Buy on GSPL.
3Q transmission tariff up 3% YoY and 10% QoQ; volumes flat
3Q EBITDA is 4% YoY higher driven by 3% YoY rise in tariff to Rs860/mscm. 3Q
FY11 tariff is also 10% QoQ higher from Rs778/mscm in 2Q FY11. Transmission
volumes at 35mmscmd are flat QoQ and YoY.
FY12-13E EPS cut by 1-9%; PO cut by 13% at Rs130/share
GSPL’s gas growth in 9M is below expectation. We have consequently cut
GSPL’s gas transmission volumes for FY11E by 12% to 36mmscmd and for
FY12-FY13E by 7-16% to 40.5-44.5mmscmd. We have also cut GSPL’s FY11-
FY13E depreciation by 39-54% following the cut in depreciation rate on pipelines.
We are assuming depreciation rate on pipelines at 4.75% in FY11E and 3.17% in
FY12-FY13E. The net impact of these changes is marginal rise in FY11E
earnings and 1-9% cut in FY12E-FY13E EPS. GSPL is going to seek company
law board permission to cut depreciation rate on pipelines to 3.17%. The
permission may come before 4Q results are announced or in FY12E. If it gets
permission in FY11E, FY11E EPS would be 7% higher at Rs8.9. We have also
cut GSPL’s PO by 13% to Rs130/share from Rs149/share to factor in impact of
cut in volumes and cash profit.
Price objective basis & risk
Gujarat State Petronet Ltd (GJRSF)
Our PO of GSPL is Rs130/share. This includes Rs94/share as DCF value of
GSPL existing gas pipeline network in Gujarat. PO also includes Rs36/share as
value of Mallavaram-Bhilwara, Mehsana-Bhatinda and Bhatinda-Jammu pipeline
for which it has won bid. WACC is 10pct based on 11.5pct cost of equity, 9.5pct
cost of debt, 17pct tax and debt-equity of 67pct. We have assumed gas
transmission volume CAGR of 11.6pct in FY10-FY13E. Gas transmission tariff is
assumed to decline at a CAGR of 3% in FY10-FY13E. We prefer DCF to value
GSPL. Downside risks: 1) Regulatory risk in the form of regulator requiring GSPL
to cut tariff. 2) Lower than expected gas transmission volumes 3) NPV of
Mallavaram-Bhilwara, Mehsana-Bhatinda and Bhatinda-Jammu pipelines being
lower than assumed (bid details not available)
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