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GSPL (GUJS)
Energy
A good quarter, but how much does it change the valuation of business? GSPL
reported 1QFY11 EBITDA at `2.65 bn (+14.1% qoq, +10.1% yoy) versus our estimate
of `2.5 bn; the qoq increase in net income reflects (1) higher transmission volumes at
36.8 mcm/d (+3.4% qoq and +1.2% yoy); our estimate was 36 mcm/d and (2) higher
transmission tariffs at `0.81/cu m versus `0.79 in 4QFY11. Yoy comparison is not valid
due to change in depreciation rates effected in FY2011. We maintain our REDUCE
rating on the stock with a target price of `92 given unfavorable risk-reward balance.
Good quarter boosted by healthy transmission volumes
GSPL reported 1QFY12 EBITDA at `2.65 bn (+14.1% qoq and +10.1% yoy) versus our estimate of
`2.5 bn. The strong performance qoq reflects (1) higher gas transmission volumes at 36.8 mcm/d
versus 35.6 mcm/d in 4QFY11, (2) higher transmission tariffs at `0.81/cu m versus `0.79/cu m in
4QFY11 and (3) higher profitability of electricity segment. The reported net income was at `1.37
bn (-8.8% qoq and +30.7% yoy). There is no merit in qoq and yoy comparison given the change
in depreciation rates effected in FY2011.
Volumes good in 1QFY12 but no certainty about source of incremental volumes in the near term
We do not see meaningful upside to GSPL’s transmission volumes unless there is a quick ramp-up
in gas supplies from RIL’s KG D-6 block, which seems unlikely given the management guidance on
the same. We also do not see imported LNG contributing meaningfully to incremental volumes for
GSPL as Petronet LNG is already operating its LNG terminal at Dahej at 105% of its nameplate
capacity. We note that GSPL will benefit from LNG volumes imported by the new LNG terminals at
Kochi and Dabhol; it does not have pipelines originating from these terminals.
Retain REDUCE with a revised target price of `92
We maintain our REDUCE rating given (1) 10% potential downside to our revised target price of
`92 and (2) potential downside from cut in GSPL’s transportation tariffs for its existing network.
We find the current tariff too high since it translates into an estimated pre-tax ROCE of 25.6%
based on FY2011 data versus 18% allowed returns. It is possible that the regulator may allow
higher-than-expected tariffs (note the case of IGL and GAIL’s HVJ system) but we do not want to
rely on regulatory oversight as an investment thesis.
Revised earnings
We have revised FY2012E, FY2013E and FY2014E EPS to `8.5, `8.4 and `10 from `8.1, `9 and
`10.7 to reflect (1) 1QFY12 results and (2) other minor changes. We model gas transmission
volumes for FY2012E, FY2013E and FY2014E at 37.1 mcm/d, 43.6 mcm/d and 47.1 mcm/d,
respectively versus 36.8 mcm/d in 1QFY12 and 35.6 mcm/d in FY2011.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GSPL (GUJS)
Energy
A good quarter, but how much does it change the valuation of business? GSPL
reported 1QFY11 EBITDA at `2.65 bn (+14.1% qoq, +10.1% yoy) versus our estimate
of `2.5 bn; the qoq increase in net income reflects (1) higher transmission volumes at
36.8 mcm/d (+3.4% qoq and +1.2% yoy); our estimate was 36 mcm/d and (2) higher
transmission tariffs at `0.81/cu m versus `0.79 in 4QFY11. Yoy comparison is not valid
due to change in depreciation rates effected in FY2011. We maintain our REDUCE
rating on the stock with a target price of `92 given unfavorable risk-reward balance.
Good quarter boosted by healthy transmission volumes
GSPL reported 1QFY12 EBITDA at `2.65 bn (+14.1% qoq and +10.1% yoy) versus our estimate of
`2.5 bn. The strong performance qoq reflects (1) higher gas transmission volumes at 36.8 mcm/d
versus 35.6 mcm/d in 4QFY11, (2) higher transmission tariffs at `0.81/cu m versus `0.79/cu m in
4QFY11 and (3) higher profitability of electricity segment. The reported net income was at `1.37
bn (-8.8% qoq and +30.7% yoy). There is no merit in qoq and yoy comparison given the change
in depreciation rates effected in FY2011.
Volumes good in 1QFY12 but no certainty about source of incremental volumes in the near term
We do not see meaningful upside to GSPL’s transmission volumes unless there is a quick ramp-up
in gas supplies from RIL’s KG D-6 block, which seems unlikely given the management guidance on
the same. We also do not see imported LNG contributing meaningfully to incremental volumes for
GSPL as Petronet LNG is already operating its LNG terminal at Dahej at 105% of its nameplate
capacity. We note that GSPL will benefit from LNG volumes imported by the new LNG terminals at
Kochi and Dabhol; it does not have pipelines originating from these terminals.
Retain REDUCE with a revised target price of `92
We maintain our REDUCE rating given (1) 10% potential downside to our revised target price of
`92 and (2) potential downside from cut in GSPL’s transportation tariffs for its existing network.
We find the current tariff too high since it translates into an estimated pre-tax ROCE of 25.6%
based on FY2011 data versus 18% allowed returns. It is possible that the regulator may allow
higher-than-expected tariffs (note the case of IGL and GAIL’s HVJ system) but we do not want to
rely on regulatory oversight as an investment thesis.
Revised earnings
We have revised FY2012E, FY2013E and FY2014E EPS to `8.5, `8.4 and `10 from `8.1, `9 and
`10.7 to reflect (1) 1QFY12 results and (2) other minor changes. We model gas transmission
volumes for FY2012E, FY2013E and FY2014E at 37.1 mcm/d, 43.6 mcm/d and 47.1 mcm/d,
respectively versus 36.8 mcm/d in 1QFY12 and 35.6 mcm/d in FY2011.
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