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GSPL (GUJS)
Energy
All transmission companies seem to be bullish on the Indian gas story. GSPL
management (in the analyst meeting) painted a bullish scenario on (1) sharp ramp-up in
supply in the existing network, (2) good utilization levels in the recently-awarded pipelines
and (3) no cut in transmission tariffs from existing levels. We retain our REDUCE rating on
the stock given 9% potential downside to our 12-month DCF-based target price of `92.
We have revised our earnings estimates to reflect lower gas transmission volumes.
Ramp-up to 45 mcm/d on existing network in the existing network versus 36 mcm/d at present
GSPL management has guided to increase in its gas transmission volumes to ~45 mcm/d over the
next two years versus 35.6 mcm/d in 4QFY11. This is higher than our revised estimate of 41.1
mcm/d in FY2012E. We find the management’s guidance challenging given (1) RIL production
from KG D-6 gas has declined from 4QFY11 levels and may remain at these levels for some time,
(2) PLNG’s Dahej terminal was operating at near-full capacity in 4QFY11 and (3) there is no
meaningful source of incremental gas supply till FY2014E. Exhibit 1 gives our estimate of gas
supply in India.
Utilization rate of ~40% on the new pipelines in the first year of operation; banking on LNG
The management was very upbeat on a sharp ramp-up in supply of gas in India to feed its extant
network in Gujarat and the new pipelines. The management expects to achieve ~40% utilization
in the first year of operation of its new pipelines—(1) Mallavaram-Vijapur-Bhilwara pipeline
(MVBPL), (2) Mehsana-Bhatinda pipeline (MBPL) and (3) Bhatinda-Srinagar pipeline (BSPL). We
believe this would be an aggressive assumption given (1) large capacity of these pipelines (see
Exhibit 2), (2) stipulated completion of pipeline within three years under the regulations and
(3) limited incremental gas supply in India over the next three years.
No cut in transmission tariffs for existing network
GSPL has submitted data for relating to tariffs for its existing network to the Petroleum and
Natural Gas Regulatory Board (PNGRB) and is awaiting approval of the same. The management
highlighted that the proposed tariff submitted by the company is significantly higher than current
tariffs. The management was confident that even if the regulator did not approve the tariffs
proposed by the company, it did not expect a cut in the tariffs below the current levels.
Retain REDUCE with a target price of `92; revised earnings for lower transmission volumes
We maintain our REDUCE rating given (1) 9% potential downside to our target price of `92, (2)
lack of positive triggers for any potential outperformance and (3) potential downside from cut in
GSPL’s transportation tariffs for its existing network. We have revised FY2012E, FY2013E and
FY2014E EPS to `8.1, `9 and `10.7 from `8.6, `10.4 and `10.5 to reflect (1) lower gas
transmission volumes given lower gas production from RIL’s KG D-6 block and (2) moderately
higher tariffs.
Other updates from the analyst meeting
Tariffs for new pipelines. GSPL management disclosed the levelized tariffs for the
recently awarded pipelines. Exhibit 3 gives details of the same and compares the same
with the tariffs of other pipelines approved by the regulator. We highlight that the
levelized tariffs for GSPL’s new pipelines are significantly lower than the approved tariffs
for other new pipelines (RGTIL’s East-West pipeline and GAIL’s GREP upgradation).
Progress on Mundra LNG terminal. GSPL is depending on the construction of Mundra
LNG terminal to feed its new pipelines. The management highlighted that it has already
completed the front end engineering design (FEED) work on the project. The 5 mtpa
terminal will likely take 42-48 months for completion.
Progress on Deen Dayal block. The management highlighted that it is making steady
progress on the Deen Dayal block and is currently developing the Deen Dayal West
structure. The wellhead platform was installed on May 28, 2011 and development drilling
will commence soon. GSPC (parent company of GSPL) plans to drill nine new
development wells and expects to commence production by mid-CY2013E. The
production is expected to be at 5-6 mcm/d which is expected to increase to 10 mcm/d
subsequently.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GSPL (GUJS)
Energy
All transmission companies seem to be bullish on the Indian gas story. GSPL
management (in the analyst meeting) painted a bullish scenario on (1) sharp ramp-up in
supply in the existing network, (2) good utilization levels in the recently-awarded pipelines
and (3) no cut in transmission tariffs from existing levels. We retain our REDUCE rating on
the stock given 9% potential downside to our 12-month DCF-based target price of `92.
We have revised our earnings estimates to reflect lower gas transmission volumes.
Ramp-up to 45 mcm/d on existing network in the existing network versus 36 mcm/d at present
GSPL management has guided to increase in its gas transmission volumes to ~45 mcm/d over the
next two years versus 35.6 mcm/d in 4QFY11. This is higher than our revised estimate of 41.1
mcm/d in FY2012E. We find the management’s guidance challenging given (1) RIL production
from KG D-6 gas has declined from 4QFY11 levels and may remain at these levels for some time,
(2) PLNG’s Dahej terminal was operating at near-full capacity in 4QFY11 and (3) there is no
meaningful source of incremental gas supply till FY2014E. Exhibit 1 gives our estimate of gas
supply in India.
Utilization rate of ~40% on the new pipelines in the first year of operation; banking on LNG
The management was very upbeat on a sharp ramp-up in supply of gas in India to feed its extant
network in Gujarat and the new pipelines. The management expects to achieve ~40% utilization
in the first year of operation of its new pipelines—(1) Mallavaram-Vijapur-Bhilwara pipeline
(MVBPL), (2) Mehsana-Bhatinda pipeline (MBPL) and (3) Bhatinda-Srinagar pipeline (BSPL). We
believe this would be an aggressive assumption given (1) large capacity of these pipelines (see
Exhibit 2), (2) stipulated completion of pipeline within three years under the regulations and
(3) limited incremental gas supply in India over the next three years.
No cut in transmission tariffs for existing network
GSPL has submitted data for relating to tariffs for its existing network to the Petroleum and
Natural Gas Regulatory Board (PNGRB) and is awaiting approval of the same. The management
highlighted that the proposed tariff submitted by the company is significantly higher than current
tariffs. The management was confident that even if the regulator did not approve the tariffs
proposed by the company, it did not expect a cut in the tariffs below the current levels.
Retain REDUCE with a target price of `92; revised earnings for lower transmission volumes
We maintain our REDUCE rating given (1) 9% potential downside to our target price of `92, (2)
lack of positive triggers for any potential outperformance and (3) potential downside from cut in
GSPL’s transportation tariffs for its existing network. We have revised FY2012E, FY2013E and
FY2014E EPS to `8.1, `9 and `10.7 from `8.6, `10.4 and `10.5 to reflect (1) lower gas
transmission volumes given lower gas production from RIL’s KG D-6 block and (2) moderately
higher tariffs.
Other updates from the analyst meeting
Tariffs for new pipelines. GSPL management disclosed the levelized tariffs for the
recently awarded pipelines. Exhibit 3 gives details of the same and compares the same
with the tariffs of other pipelines approved by the regulator. We highlight that the
levelized tariffs for GSPL’s new pipelines are significantly lower than the approved tariffs
for other new pipelines (RGTIL’s East-West pipeline and GAIL’s GREP upgradation).
Progress on Mundra LNG terminal. GSPL is depending on the construction of Mundra
LNG terminal to feed its new pipelines. The management highlighted that it has already
completed the front end engineering design (FEED) work on the project. The 5 mtpa
terminal will likely take 42-48 months for completion.
Progress on Deen Dayal block. The management highlighted that it is making steady
progress on the Deen Dayal block and is currently developing the Deen Dayal West
structure. The wellhead platform was installed on May 28, 2011 and development drilling
will commence soon. GSPC (parent company of GSPL) plans to drill nine new
development wells and expects to commence production by mid-CY2013E. The
production is expected to be at 5-6 mcm/d which is expected to increase to 10 mcm/d
subsequently.
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