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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Saurabh Mishra / Research Analyst / 91 22 6777 3894 / saurabh.mishra@credit-suisse.com
● Despite D6 volume downgrade, total gas volumes in India can still
exhibit some growth. If (1) D6 decline moderates, (2) ONGC’s
rejuvenation programme perform as forecasted, (3) PMT does not
fall off a cliff and (4) spot LNG prices do not increase further. For
full report, please click here.
● GSPL volumes are more dependent on market dynamics than
GAIL, we think. We estimate that a 20 mmscmd increase in FY14
domestic gas output will increase GAIL throughput by 6.5
mmscmd (5%), but improve GSPL numbers by 21% (10
mmscmd); with similar sensitivity on the downside. With GSPL
trading at ex growth valuations (10x FY12E consensus), and at a
significant discount to GAIL on P/E, P/B (with higher RoE), stock
appears compelling.
● Despite increasing spot prices, the strength in LNG imports has
surprised. Increasing Rasgas contract prices, and any potential
price pooling can affect gas consumed at power plants, which can
have a material impact on long term LNG import into India.
● We update gas transmission forecasts for GAIL and GSPL. GAIL/
GSPL FY13E EPS fall 4/9% to Rs34.9/10.3. Our GAIL TP falls to
Rs521 (from Rs557). Our GSPL TP rises from Rs117 to Rs127
Gas volumes can still grow
A flood of D6 gas was expected to swamp the Indian gas market,
drowning other issues and assuring volume growth for intermediaries
and customers. With that turning out to be a damp squib (at least near
term), uncertainties in other supply sources come to the fore, eroding
growth expectations at most related gas stocks. With PLNG now
operating 105%, GAIL and GSPL guidance of volume growth are
currently being ignored, we think. Total gas availability in India could
in fact grow, if (1) D6 decline rates moderated (as RIL is currently
guiding to), (2) ONGC’s rejuvenation program and marginal field
projects perform as forecasted, (3) PMT does not fall off a cliff and (4)
spot LNG prices do not increase further. Total natural gas availability
in India could then grow c.30 mmscmd between FY11-FY14. We note
this volume growth estimate is ‘un-risked’, and based on multiple
assumptions, but also highlight that market is currently expecting none.
LNG import constrained by capacity
The recent strength in Indian LNG imports (despite increasing spot
prices) has surprised, having being led by consumption at refineries.
Refineries – with limited capacity addition, and city gas – with low
specific gas consumption – are unlikely to drive medium-term demand.
Consumption of gas at power plants can potentially be large, but is
dependant on LNG costs. Power tariffs in India do not support current
spot LNG. The sharp increase in Qatar take-or-pay contract prices
(and any consequent pooling of prices), when combined with any
increase in prices of domestic gas, can materially impact gas volumes
(specifically LT LNG volumes) consumed at power plants, we believe.
This will affect utilisation of import terminals and gas pipelines. In the
near term, however, we see little risk of this. On our India gas model,
we see terminal utilisation remaining c.100% until FY14 as long as
spot LNG prices (delivered) are less than US$12-13/mmbtu.
GSPL has higher sensitivity to gas availability
Of the two principal pipeline companies, GSPL has larger leverage to
gas availability due to (1) a lower base (GSPL currently ships 36
mmscmd to GAIL’s 120) and (1) the government’s gas allocations,
which have been focussed on plants along GAIL’s pipelines. A large
part of the decline in D6 gas volumes has come off GSPL’s networks
being replaced by LNG. Given the government is allocating both D6
and APM gas, we expect allocation priorities to be similar. Any
increase in ONGC’s output could then materially impact GSPL
volumes.
Update models
We update our Indian gas model linking (1) domestic gas production
(falling D6, increasing ONGC), (2) gas consumption capacities
(operational, and under construction), (3) gas pipe-line capacity and
(4) LNG import (dependent on capacities and LNG prices), and
update GAIL/ GSPL numbers accordingly. For GAIL, we now have
transmission volumes at 122/ 127/ 136 mmscmd (123/ 132/ 132
earlier) for FY12/ 13/ 14. FY13E EPS falls 4% (on volumes and DD&A
from new pipelines) and FY14E falls 10% to Rs40.3. Our target price
falls from Rs557 to Rs521. We reduce GSPL gas volumes for FY12/
13 from 41 / 51 to 37 / 39 mmscmd. Our target price increases from
Rs117 to Rs127, as we remove the 25% discount we had earlier
applied to GSPL’s ‘growth option value’ (we now have specific, bottom
up volume forecasts). GSPL trades at a significant discount to GAIL
on P/E and P/B, despite higher RoE, and is our preferred pick in the
Indian gas pipeline space.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Saurabh Mishra / Research Analyst / 91 22 6777 3894 / saurabh.mishra@credit-suisse.com
● Despite D6 volume downgrade, total gas volumes in India can still
exhibit some growth. If (1) D6 decline moderates, (2) ONGC’s
rejuvenation programme perform as forecasted, (3) PMT does not
fall off a cliff and (4) spot LNG prices do not increase further. For
full report, please click here.
● GSPL volumes are more dependent on market dynamics than
GAIL, we think. We estimate that a 20 mmscmd increase in FY14
domestic gas output will increase GAIL throughput by 6.5
mmscmd (5%), but improve GSPL numbers by 21% (10
mmscmd); with similar sensitivity on the downside. With GSPL
trading at ex growth valuations (10x FY12E consensus), and at a
significant discount to GAIL on P/E, P/B (with higher RoE), stock
appears compelling.
● Despite increasing spot prices, the strength in LNG imports has
surprised. Increasing Rasgas contract prices, and any potential
price pooling can affect gas consumed at power plants, which can
have a material impact on long term LNG import into India.
● We update gas transmission forecasts for GAIL and GSPL. GAIL/
GSPL FY13E EPS fall 4/9% to Rs34.9/10.3. Our GAIL TP falls to
Rs521 (from Rs557). Our GSPL TP rises from Rs117 to Rs127
Gas volumes can still grow
A flood of D6 gas was expected to swamp the Indian gas market,
drowning other issues and assuring volume growth for intermediaries
and customers. With that turning out to be a damp squib (at least near
term), uncertainties in other supply sources come to the fore, eroding
growth expectations at most related gas stocks. With PLNG now
operating 105%, GAIL and GSPL guidance of volume growth are
currently being ignored, we think. Total gas availability in India could
in fact grow, if (1) D6 decline rates moderated (as RIL is currently
guiding to), (2) ONGC’s rejuvenation program and marginal field
projects perform as forecasted, (3) PMT does not fall off a cliff and (4)
spot LNG prices do not increase further. Total natural gas availability
in India could then grow c.30 mmscmd between FY11-FY14. We note
this volume growth estimate is ‘un-risked’, and based on multiple
assumptions, but also highlight that market is currently expecting none.
LNG import constrained by capacity
The recent strength in Indian LNG imports (despite increasing spot
prices) has surprised, having being led by consumption at refineries.
Refineries – with limited capacity addition, and city gas – with low
specific gas consumption – are unlikely to drive medium-term demand.
Consumption of gas at power plants can potentially be large, but is
dependant on LNG costs. Power tariffs in India do not support current
spot LNG. The sharp increase in Qatar take-or-pay contract prices
(and any consequent pooling of prices), when combined with any
increase in prices of domestic gas, can materially impact gas volumes
(specifically LT LNG volumes) consumed at power plants, we believe.
This will affect utilisation of import terminals and gas pipelines. In the
near term, however, we see little risk of this. On our India gas model,
we see terminal utilisation remaining c.100% until FY14 as long as
spot LNG prices (delivered) are less than US$12-13/mmbtu.
GSPL has higher sensitivity to gas availability
Of the two principal pipeline companies, GSPL has larger leverage to
gas availability due to (1) a lower base (GSPL currently ships 36
mmscmd to GAIL’s 120) and (1) the government’s gas allocations,
which have been focussed on plants along GAIL’s pipelines. A large
part of the decline in D6 gas volumes has come off GSPL’s networks
being replaced by LNG. Given the government is allocating both D6
and APM gas, we expect allocation priorities to be similar. Any
increase in ONGC’s output could then materially impact GSPL
volumes.
Update models
We update our Indian gas model linking (1) domestic gas production
(falling D6, increasing ONGC), (2) gas consumption capacities
(operational, and under construction), (3) gas pipe-line capacity and
(4) LNG import (dependent on capacities and LNG prices), and
update GAIL/ GSPL numbers accordingly. For GAIL, we now have
transmission volumes at 122/ 127/ 136 mmscmd (123/ 132/ 132
earlier) for FY12/ 13/ 14. FY13E EPS falls 4% (on volumes and DD&A
from new pipelines) and FY14E falls 10% to Rs40.3. Our target price
falls from Rs557 to Rs521. We reduce GSPL gas volumes for FY12/
13 from 41 / 51 to 37 / 39 mmscmd. Our target price increases from
Rs117 to Rs127, as we remove the 25% discount we had earlier
applied to GSPL’s ‘growth option value’ (we now have specific, bottom
up volume forecasts). GSPL trades at a significant discount to GAIL
on P/E and P/B, despite higher RoE, and is our preferred pick in the
Indian gas pipeline space.
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