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our interaction with Gujarat State Petronet’s (GSPL) management, our
concerns about dropping volumes stand largely mitigated as most of the supply
agreements entered into by the company are take or pay contracts. We have
revised downwards our volumes estimates by 13-15% over FY12-14, which
translates into a revised fair value of Rs110/share, down by 17%. However, the
recent correction in the stock fully factors in the concerns on volumes and tariffs.
Additional LNG capacities from GSPL’s Dahej terminal and Shell’s Hazira
expansion provide volume visibility in the near term. As for its 4,000km crosscountry
pipeline, ample sourcing options exist, with ~60mmscmd LNG capacities
under commissioning over the next three-four years and additional LNG
capacities planned on the east coast. Reiterate Buy.
Drop in volumes – impact muted due to take or pay clause: Gas transmission
volumes have dropped to ~33mmscmd, as volume offtake from Essar OIL and
Torrent Power has declined by ~3mmscmd. Though GSPL’s supply mix is
dominated by LNG, in wake of dwindling supply from RIL’s KG D6 due to production
fall there, its revenue hit would be marginal as most of the supply agreements are
take or pay contracts. Offtake from Torrent Power is expected to resume in
February. Further, drop in spot LNG prices is expected push up volumes as it would
bring in customers who cut back due to high LNG prices. We trim our volume
estimates for FY12, FY13 and FY14 to 35mmscmd, 37mmscmd and 42.6mmscmd
factoring in further decline in RIL volumes.
Concerns on tariffs in the price: With PNGRB expected to approve GSPL’s tariffs
in few months’ time, it is being speculated that the tariffs could be lower than the
current levels. Though it is challenging to estimate GSPL’s regulated tariffs, we
believe that the current price of GSPL already captures in the tariffs at Rs0.6/scm,
we below our worst case scenario of Rs0.7/scm levels. Our valuations factor in a
sharp decline in tariffs, based on which we reiterate that the stock offers favourable
risk-reward at the current levels.
Investments in new pipelines, GSPC Gas add value: We continue to see positive
value in GSPL’s investment in the 4,000km cross-country pipeline, as upcoming
LNG capacities provide enough volume cushion to make these investments viable.
GSPL’s stakes in GSPC Gas and Sabarmati Gas provides upsides as well
(Rs15/share), as GSPC Gas Company continues to expand its volume base
(>4mmscmd currently).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
our interaction with Gujarat State Petronet’s (GSPL) management, our
concerns about dropping volumes stand largely mitigated as most of the supply
agreements entered into by the company are take or pay contracts. We have
revised downwards our volumes estimates by 13-15% over FY12-14, which
translates into a revised fair value of Rs110/share, down by 17%. However, the
recent correction in the stock fully factors in the concerns on volumes and tariffs.
Additional LNG capacities from GSPL’s Dahej terminal and Shell’s Hazira
expansion provide volume visibility in the near term. As for its 4,000km crosscountry
pipeline, ample sourcing options exist, with ~60mmscmd LNG capacities
under commissioning over the next three-four years and additional LNG
capacities planned on the east coast. Reiterate Buy.
Drop in volumes – impact muted due to take or pay clause: Gas transmission
volumes have dropped to ~33mmscmd, as volume offtake from Essar OIL and
Torrent Power has declined by ~3mmscmd. Though GSPL’s supply mix is
dominated by LNG, in wake of dwindling supply from RIL’s KG D6 due to production
fall there, its revenue hit would be marginal as most of the supply agreements are
take or pay contracts. Offtake from Torrent Power is expected to resume in
February. Further, drop in spot LNG prices is expected push up volumes as it would
bring in customers who cut back due to high LNG prices. We trim our volume
estimates for FY12, FY13 and FY14 to 35mmscmd, 37mmscmd and 42.6mmscmd
factoring in further decline in RIL volumes.
Concerns on tariffs in the price: With PNGRB expected to approve GSPL’s tariffs
in few months’ time, it is being speculated that the tariffs could be lower than the
current levels. Though it is challenging to estimate GSPL’s regulated tariffs, we
believe that the current price of GSPL already captures in the tariffs at Rs0.6/scm,
we below our worst case scenario of Rs0.7/scm levels. Our valuations factor in a
sharp decline in tariffs, based on which we reiterate that the stock offers favourable
risk-reward at the current levels.
Investments in new pipelines, GSPC Gas add value: We continue to see positive
value in GSPL’s investment in the 4,000km cross-country pipeline, as upcoming
LNG capacities provide enough volume cushion to make these investments viable.
GSPL’s stakes in GSPC Gas and Sabarmati Gas provides upsides as well
(Rs15/share), as GSPC Gas Company continues to expand its volume base
(>4mmscmd currently).
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