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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Of fine mettle
�� Current valuations seem to be factoring in a 23% tariff cut
�� We do not see average tariffs below INR750/tcm
�� Pipeline bids reasonable but implementation stuck
�� Trimming estimates, reducing TP by 3% - reiterate BUY
Resilient performer
We had expected regulatory overhang
and the absence of catalysts to constrain
GSPL’s near-term stock performance.
Despite being a small cap, the stock has
held up well in the current market carnage
as the market appears to be viewing it as
a defensive. Although we have reduced
our gas transmission volume estimates,
we continue to find GSPL’s valuations
reasonable and reiterate our BUY rating.
We believe the gas transmission tariff will
not be less than INR750/tcm, when
PNGRB finalises it by the end of the year
or early next year.
Pipeline bids reasonable opine experts
Although it will be years before we know whether GSPL’s bids for the
three pipelines it won were reasonable or not, our conversations with
industry experts and pipe makers indicate that GSPL’s bids are
reasonable (see page 3). However, pipeline implementation is again
stuck in a legal quagmire and, in the worst case, GSPL may just find it
impractical to execute on account of time and cost over-runs. On the flip
side, a delay would help align completion of pipelines with new domestic
gas production starting in FY16.
Change in estimates
We reduce our volume assumptions 14.2% for FY12 to 37.4mmscmd and
8.3% for FY13 to 43.6mmscmd, given the delay in the start-up of new
gas-based power plants and given our view that the utilisation of for gasbased
power plants will be only 70% on reduced availability of cheap
domestic gas. We also increase our cost assumptions. Consequently, our
EBITDA estimates decline 11% for FY12 and 7.3% for FY13. However,
we have raised EPS estimates 7.5% and 14.2% over the same period, as
we now assume INR depreciation of 3.17% (vs 8.33% previously).
Maintain BUY with a lower TP of INR140.00
We roll over our EV/EBITDA-based TP from FY12E to FY13E. We
continue to value GSPL at a target FY13E EBITDA of 8x. Our TP goes
down by 3%, from INR144 to INR140, on lower EBITDA estimates. We
do not include the three pipelines that GSPL has won under bids. We
reiterate that we find the stock undervalued – trades at FY13E
EV/EBITDA of 6.1x, a discount to global peers’ 10.1x on Bloomberg
consensus estimates. The discount is owing to the overhang of a
possible tariff cut, which we believe is unlikely. Key risks are lower-thanexpected
gas transmission tariffs and volumes.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Of fine mettle
�� Current valuations seem to be factoring in a 23% tariff cut
�� We do not see average tariffs below INR750/tcm
�� Pipeline bids reasonable but implementation stuck
�� Trimming estimates, reducing TP by 3% - reiterate BUY
Resilient performer
We had expected regulatory overhang
and the absence of catalysts to constrain
GSPL’s near-term stock performance.
Despite being a small cap, the stock has
held up well in the current market carnage
as the market appears to be viewing it as
a defensive. Although we have reduced
our gas transmission volume estimates,
we continue to find GSPL’s valuations
reasonable and reiterate our BUY rating.
We believe the gas transmission tariff will
not be less than INR750/tcm, when
PNGRB finalises it by the end of the year
or early next year.
Pipeline bids reasonable opine experts
Although it will be years before we know whether GSPL’s bids for the
three pipelines it won were reasonable or not, our conversations with
industry experts and pipe makers indicate that GSPL’s bids are
reasonable (see page 3). However, pipeline implementation is again
stuck in a legal quagmire and, in the worst case, GSPL may just find it
impractical to execute on account of time and cost over-runs. On the flip
side, a delay would help align completion of pipelines with new domestic
gas production starting in FY16.
Change in estimates
We reduce our volume assumptions 14.2% for FY12 to 37.4mmscmd and
8.3% for FY13 to 43.6mmscmd, given the delay in the start-up of new
gas-based power plants and given our view that the utilisation of for gasbased
power plants will be only 70% on reduced availability of cheap
domestic gas. We also increase our cost assumptions. Consequently, our
EBITDA estimates decline 11% for FY12 and 7.3% for FY13. However,
we have raised EPS estimates 7.5% and 14.2% over the same period, as
we now assume INR depreciation of 3.17% (vs 8.33% previously).
Maintain BUY with a lower TP of INR140.00
We roll over our EV/EBITDA-based TP from FY12E to FY13E. We
continue to value GSPL at a target FY13E EBITDA of 8x. Our TP goes
down by 3%, from INR144 to INR140, on lower EBITDA estimates. We
do not include the three pipelines that GSPL has won under bids. We
reiterate that we find the stock undervalued – trades at FY13E
EV/EBITDA of 6.1x, a discount to global peers’ 10.1x on Bloomberg
consensus estimates. The discount is owing to the overhang of a
possible tariff cut, which we believe is unlikely. Key risks are lower-thanexpected
gas transmission tariffs and volumes.
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