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GSPL (GUJS)
Energy
Low on gas. GSPL reported in-line 3QFY12 net income at `1.26 bn (-2.5% qoq and -
20.7% yoy). The qoq decline in net income reflects lower transmission volumes at 32.8
mcm/d (-6.9% qoq and -7.3% yoy); our estimate was 33.5 mcm/d. This was partially
offset by higher transmission tariffs at `0.9/cu m versus `0.84 in 2QFY12. We see low
probability of increase in gas transmission volumes over the next 12-18 months. We
maintain our REDUCE rating on the stock with a revised DCF-based target price of `87
(`93 previously) given unfavorable risk-reward balance.
Sharp decline in gas transmission volumes; partially offset by higher transmission tariffs
GSPL reported 3QFY12 EBITDA at `2.53 bn (-2.1% qoq and -3.4% yoy) versus our estimate of
`2.5 bn. The weak operating performance reflects sharply lower gas transmission volumes at 32.8
mcm/d versus 35.2 mcm/d in 2QFY12 and 35.3 mcm/d in 3QFY11. This was partially offset by
higher transmission tariffs at `0.9/cu m versus `0.84/cu m in 2QFY12 and `0.85/cu m in 3QFY11.
Reported net income was at `1.26 bn (-2.5% qoq); there is no merit in yoy comparison given the
change in depreciation rates effected in FY2011.
Decline in volumes despite increase in LNG imports reflects lower gas from KG D-6 block
It would appear that GSPL has not benefited from rising imported LNG volumes at PLNG’s Dahej
terminal. GAIL appears to be in a better position to evacuate imported LNG from Dahej given its
(1) Dahej-Vijaipur pipeline network and (2) part ownership of PLNG. We rule out meaningful
upside to GSPL’s transmission volumes without a quick ramp-up in gas supplies from RIL’s KG D-6
block; this seems unlikely given RIL’s management guidance on the same.
Retain REDUCE with a revised target price of `87 (`93 previously)
We maintain our REDUCE rating on GSPL given (1) the stock is trading near our revised DCF-based
target price of `87 (`93 previously), (2) potential downside from cut in GSPL’s transmission tariffs
for its existing network and (3) risks to gas transmission volumes. We find the current tariff too
high since it translates into an estimated pre-tax ROCE of 22.5% based on 9MFY12 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.
Revise earnings
We have revised FY2012E, FY2013E and FY2014E EPS to `9.2, `8.5 and `9.1 from `9.1, `8.6 and
`10 to reflect (1) lower gas transmission volumes, (2) 3QFY12 results and (3) other minor changes.
We model gas transmission volumes for FY2012E, FY2013E and FY2014E at 34.3 mcm/d, 34
mcm/d and 36 mcm/d, respectively versus 34.9 mcm/d in 9MFY12 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
Low on gas. GSPL reported in-line 3QFY12 net income at `1.26 bn (-2.5% qoq and -
20.7% yoy). The qoq decline in net income reflects lower transmission volumes at 32.8
mcm/d (-6.9% qoq and -7.3% yoy); our estimate was 33.5 mcm/d. This was partially
offset by higher transmission tariffs at `0.9/cu m versus `0.84 in 2QFY12. We see low
probability of increase in gas transmission volumes over the next 12-18 months. We
maintain our REDUCE rating on the stock with a revised DCF-based target price of `87
(`93 previously) given unfavorable risk-reward balance.
Sharp decline in gas transmission volumes; partially offset by higher transmission tariffs
GSPL reported 3QFY12 EBITDA at `2.53 bn (-2.1% qoq and -3.4% yoy) versus our estimate of
`2.5 bn. The weak operating performance reflects sharply lower gas transmission volumes at 32.8
mcm/d versus 35.2 mcm/d in 2QFY12 and 35.3 mcm/d in 3QFY11. This was partially offset by
higher transmission tariffs at `0.9/cu m versus `0.84/cu m in 2QFY12 and `0.85/cu m in 3QFY11.
Reported net income was at `1.26 bn (-2.5% qoq); there is no merit in yoy comparison given the
change in depreciation rates effected in FY2011.
Decline in volumes despite increase in LNG imports reflects lower gas from KG D-6 block
It would appear that GSPL has not benefited from rising imported LNG volumes at PLNG’s Dahej
terminal. GAIL appears to be in a better position to evacuate imported LNG from Dahej given its
(1) Dahej-Vijaipur pipeline network and (2) part ownership of PLNG. We rule out meaningful
upside to GSPL’s transmission volumes without a quick ramp-up in gas supplies from RIL’s KG D-6
block; this seems unlikely given RIL’s management guidance on the same.
Retain REDUCE with a revised target price of `87 (`93 previously)
We maintain our REDUCE rating on GSPL given (1) the stock is trading near our revised DCF-based
target price of `87 (`93 previously), (2) potential downside from cut in GSPL’s transmission tariffs
for its existing network and (3) risks to gas transmission volumes. We find the current tariff too
high since it translates into an estimated pre-tax ROCE of 22.5% based on 9MFY12 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.
Revise earnings
We have revised FY2012E, FY2013E and FY2014E EPS to `9.2, `8.5 and `9.1 from `9.1, `8.6 and
`10 to reflect (1) lower gas transmission volumes, (2) 3QFY12 results and (3) other minor changes.
We model gas transmission volumes for FY2012E, FY2013E and FY2014E at 34.3 mcm/d, 34
mcm/d and 36 mcm/d, respectively versus 34.9 mcm/d in 9MFY12 and 35.6 mcm/d in FY2011
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