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GUJARAT STATE PETRONET LTD (GSPL)
RECOMMENDATION: REDUCE
TARGET PRICE: RS.102
FY12E P/CEPS: 7.6X
q In Q3FY11, GSPL had reported better than expected results mainly on account
of better tariff realizations, lower operating cost and change in
depreciation policy.
q The Company had changed the depreciation rate on gas transmission
pipeline from 8.33% SLM to 4.75% SLM w.e.f 1st April'10 resulting in
lower depreciation of Rs.250.47 Mn in Q3FY11 (Rs. 755.2 Mn lower for
9M FY11). Accordingly, our PAT estimates for Q3FY11 to that extent had
been lower than the actual.
q GSPL reported flat volume growth of 0.04% QoQ and 0.60% YoY to 35.3
MMSCMD in Q3FY11.
q Key risk remains in terms of capping of margins by PNGRB at 18% pre tax
ROCE. Based on Q3FY11 rates GSPL is earning around 36.8% pre tax ROCE
q The current share price discounts most of the positive developments and
leaves limited upside of 8% hence we recommend to REDUCE the stock.
Volume performance
n In Q3FY11, the company transported 35.34 MMSCMD (35.52 MMSCMD in
Q2FY11) of gas resulting in flat volume growth of 0.6% on YoY basis. The Company
failed to increase the volumes even though LNG imports had increased in
Q3FY11.
n Revenues for Q3FY11 were at Rs.2.79 bn up by 4% YoY and 10% QoQ on sequential
basis. The average tariffs were at Rs.849 per TCM in Q3FY11 that recorded
rise of 2.2% on YoY basis and 9.4% QoQ basis. This is primarily due to
increased long distance transportation of gas which typically earns higher gas
transmission charges thereby pulling the averages up.
n The company recorded lower operating margin of 93.8% in Q3FY11, which is
down 41.7 bps YoY and up 207 bps on sequential basis. On sequential basis, the
jump in margin was primarily due to sharp decrease in administrative cost (40%
fall QoQ basis) and other operational and maintenance charges (down 7% QoQ).
This is well supported by the fact that admin expenses to sales ratio had reduced
from 2.77% in Q2FY10 to 1.50% in Q3FY11.
n In Q3FY11 operational profit registered a growth (absolute terms) of 3.5% YoY
and 12.8% on QoQ basis to Rs.2.6 bn.
n The depreciation is down by 95.7% on YoY and 96.7% on QoQ basis to Rs.25
mn due to change in depreciation rate on gas transmission pipeline from 8.33%
to 4.75% SLM w.e.f 1st April, 2010.
n PBT for Q3FY11 was at Rs.2.4 bn up by 36.5% YoY and 70.3% on QoQ basis.
n PAT for Q3FY11 was at Rs.1.6 Bn up 38% YoY and up 74% on QoQ basis
thereby translating into quarterly EPS of Rs.2.83 and CEPS of Rs.2.88.
Key risk remains - margins to be capped at 12%post tax ROCE
n The key risk in GSPL is its pipeline tariffs which were at Rs.796 per TCM in
9MFY11. This is expected to lead to ~20.5% pre ROCE for GSPL in FY11E.
n PNGRB has already stated its intent to cap the cross country natural gas pipeline
returns at 12% post tax ROCE or 18.18% pre tax ROCE. However due to lack of
clarity from PNGRB, GSPL continues to charge such high tariffs for transportation
of natural gas through its pipelines. We have assumed only marginal decline in
pipeline tariffs which result in more then 20% pre tax ROCE.
n Currently GSPL is operating in only state of Gujarat and is not covered by this
regulation. However going forward we do not rule out the possibility that all the
natural gas pipelines in the country would come under PNGRB guidance of maximum
return of 12% post tax ROCE.
n Going forward the major growth in GSPL is expected to come from interstate
pipelines across Gujarat, Rajasthan, Maharashtra and Andhra Pradesh. Thus its
returns are expected to be capped going forward.
n We believe there is significant risk to GSPL`s pipeline tariffs which would significantly
impact its revenues and profits going forward.
Maintain earning estimates
We expect GSPL to transport ~36.0 MMSCMD of natural gas in FY11E. We expect
GSPL to report EPS of Rs.8.5 and CEPS of Rs.12 in FY11E.
Valuation & Recommendation
n On the basis of our estimates, the stock at current market price of Rs.94 is trading
at fair valuations of 6.37x EV/EBIDTA, 11.17x P/E and 7.57x P/cash earnings
on the basis of FY12 earnings estimates.
n We feel that the risk reward ratio is not favorable at the current point of time
and we recommend investors to book profits in GSPL. This is primarily on account
of fair valuation and risk to its earning on account of potential capping of
margins at 12% post tax ROCE by PNGRB.
n Due to limited upside potential form the current levels we continue to recommend
REDUCE on GSPL.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GUJARAT STATE PETRONET LTD (GSPL)
RECOMMENDATION: REDUCE
TARGET PRICE: RS.102
FY12E P/CEPS: 7.6X
q In Q3FY11, GSPL had reported better than expected results mainly on account
of better tariff realizations, lower operating cost and change in
depreciation policy.
q The Company had changed the depreciation rate on gas transmission
pipeline from 8.33% SLM to 4.75% SLM w.e.f 1st April'10 resulting in
lower depreciation of Rs.250.47 Mn in Q3FY11 (Rs. 755.2 Mn lower for
9M FY11). Accordingly, our PAT estimates for Q3FY11 to that extent had
been lower than the actual.
q GSPL reported flat volume growth of 0.04% QoQ and 0.60% YoY to 35.3
MMSCMD in Q3FY11.
q Key risk remains in terms of capping of margins by PNGRB at 18% pre tax
ROCE. Based on Q3FY11 rates GSPL is earning around 36.8% pre tax ROCE
q The current share price discounts most of the positive developments and
leaves limited upside of 8% hence we recommend to REDUCE the stock.
Volume performance
n In Q3FY11, the company transported 35.34 MMSCMD (35.52 MMSCMD in
Q2FY11) of gas resulting in flat volume growth of 0.6% on YoY basis. The Company
failed to increase the volumes even though LNG imports had increased in
Q3FY11.
n Revenues for Q3FY11 were at Rs.2.79 bn up by 4% YoY and 10% QoQ on sequential
basis. The average tariffs were at Rs.849 per TCM in Q3FY11 that recorded
rise of 2.2% on YoY basis and 9.4% QoQ basis. This is primarily due to
increased long distance transportation of gas which typically earns higher gas
transmission charges thereby pulling the averages up.
n The company recorded lower operating margin of 93.8% in Q3FY11, which is
down 41.7 bps YoY and up 207 bps on sequential basis. On sequential basis, the
jump in margin was primarily due to sharp decrease in administrative cost (40%
fall QoQ basis) and other operational and maintenance charges (down 7% QoQ).
This is well supported by the fact that admin expenses to sales ratio had reduced
from 2.77% in Q2FY10 to 1.50% in Q3FY11.
n In Q3FY11 operational profit registered a growth (absolute terms) of 3.5% YoY
and 12.8% on QoQ basis to Rs.2.6 bn.
n The depreciation is down by 95.7% on YoY and 96.7% on QoQ basis to Rs.25
mn due to change in depreciation rate on gas transmission pipeline from 8.33%
to 4.75% SLM w.e.f 1st April, 2010.
n PBT for Q3FY11 was at Rs.2.4 bn up by 36.5% YoY and 70.3% on QoQ basis.
n PAT for Q3FY11 was at Rs.1.6 Bn up 38% YoY and up 74% on QoQ basis
thereby translating into quarterly EPS of Rs.2.83 and CEPS of Rs.2.88.
Key risk remains - margins to be capped at 12%post tax ROCE
n The key risk in GSPL is its pipeline tariffs which were at Rs.796 per TCM in
9MFY11. This is expected to lead to ~20.5% pre ROCE for GSPL in FY11E.
n PNGRB has already stated its intent to cap the cross country natural gas pipeline
returns at 12% post tax ROCE or 18.18% pre tax ROCE. However due to lack of
clarity from PNGRB, GSPL continues to charge such high tariffs for transportation
of natural gas through its pipelines. We have assumed only marginal decline in
pipeline tariffs which result in more then 20% pre tax ROCE.
n Currently GSPL is operating in only state of Gujarat and is not covered by this
regulation. However going forward we do not rule out the possibility that all the
natural gas pipelines in the country would come under PNGRB guidance of maximum
return of 12% post tax ROCE.
n Going forward the major growth in GSPL is expected to come from interstate
pipelines across Gujarat, Rajasthan, Maharashtra and Andhra Pradesh. Thus its
returns are expected to be capped going forward.
n We believe there is significant risk to GSPL`s pipeline tariffs which would significantly
impact its revenues and profits going forward.
Maintain earning estimates
We expect GSPL to transport ~36.0 MMSCMD of natural gas in FY11E. We expect
GSPL to report EPS of Rs.8.5 and CEPS of Rs.12 in FY11E.
Valuation & Recommendation
n On the basis of our estimates, the stock at current market price of Rs.94 is trading
at fair valuations of 6.37x EV/EBIDTA, 11.17x P/E and 7.57x P/cash earnings
on the basis of FY12 earnings estimates.
n We feel that the risk reward ratio is not favorable at the current point of time
and we recommend investors to book profits in GSPL. This is primarily on account
of fair valuation and risk to its earning on account of potential capping of
margins at 12% post tax ROCE by PNGRB.
n Due to limited upside potential form the current levels we continue to recommend
REDUCE on GSPL.
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