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GSPL (GUJS)
Energy
2QFY12 could be the run-rate earnings for sometime. GSPL reported 2QFY11 net
income at `1.29 bn (-5.9% qoq, +41.3% yoy), in line with our estimate of `1.28 bn;
the qoq decline in net income reflects lower transmission volumes at 35.2 mcm/d (-
4.2% qoq and -0.3% yoy); our estimate was 35.4 mcm/d. This was partially offset by
higher transmission tariffs at `0.84/cu m versus `0.81 in 1QFY12. Yoy comparison is
not valid due to change in depreciation rates effected in FY2011. We maintain our SELL
rating on the stock with a revised DCF-based target price of `93 (`92 previously) given
unfavorable risk-reward balance.
Lower transmission volumes and higher transmission tariffs result in flat qoq operating earnings
GSPL reported 2QFY12 EBITDA at `2.6 bn (-2.4% qoq and +10.8% yoy) versus our estimate of
`2.5 bn. The modestly weak performance qoq reflects lower gas transmission volumes at 35.2
mcm/d versus 36.8 mcm/d in 1QFY12. This was partially offset by higher transmission tariffs at
`0.84/cu m versus `0.81/cu m in 1QFY12. The reported net income was at `1.29 bn (-5.9% qoq);
there is no merit in yoy comparison given the change in depreciation rates effected in FY2011.
Qoq decline in volumes despite increase in LNG imports reaffirm our concerns in the near term
We do not see imported LNG contributing meaningfully to incremental volumes for GSPL given
4.2% qoq decline in volumes despite increase in LNG imports at Dahej terminal. We also highlight
that GSPL will not benefit from LNG volumes imported by the new LNG terminals at Kochi and
Dabhol; it does not have pipelines originating from these terminals. Accordingly, we rule out
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.
Retain SELL with a revised target price of `93
We maintain our SELL rating on GSPL given (1) stock is trading above our revised DCF-based target
price of `93 (`92 previously) 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 23.3% based on1HFY12 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 `9.1, `8.6 and `10 from `8.5, `8.4 and
`10.3 to reflect (1) lower gas transmission volumes, (2) 2QFY12 results and (3) other minor
changes. We model gas transmission volumes for FY2012E, FY2013E and FY2014E at 36 mcm/d,
38 mcm/d and 42 mcm/d, respectively versus 36 mcm/d in 1HFY12 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
2QFY12 could be the run-rate earnings for sometime. GSPL reported 2QFY11 net
income at `1.29 bn (-5.9% qoq, +41.3% yoy), in line with our estimate of `1.28 bn;
the qoq decline in net income reflects lower transmission volumes at 35.2 mcm/d (-
4.2% qoq and -0.3% yoy); our estimate was 35.4 mcm/d. This was partially offset by
higher transmission tariffs at `0.84/cu m versus `0.81 in 1QFY12. Yoy comparison is
not valid due to change in depreciation rates effected in FY2011. We maintain our SELL
rating on the stock with a revised DCF-based target price of `93 (`92 previously) given
unfavorable risk-reward balance.
Lower transmission volumes and higher transmission tariffs result in flat qoq operating earnings
GSPL reported 2QFY12 EBITDA at `2.6 bn (-2.4% qoq and +10.8% yoy) versus our estimate of
`2.5 bn. The modestly weak performance qoq reflects lower gas transmission volumes at 35.2
mcm/d versus 36.8 mcm/d in 1QFY12. This was partially offset by higher transmission tariffs at
`0.84/cu m versus `0.81/cu m in 1QFY12. The reported net income was at `1.29 bn (-5.9% qoq);
there is no merit in yoy comparison given the change in depreciation rates effected in FY2011.
Qoq decline in volumes despite increase in LNG imports reaffirm our concerns in the near term
We do not see imported LNG contributing meaningfully to incremental volumes for GSPL given
4.2% qoq decline in volumes despite increase in LNG imports at Dahej terminal. We also highlight
that GSPL will not benefit from LNG volumes imported by the new LNG terminals at Kochi and
Dabhol; it does not have pipelines originating from these terminals. Accordingly, we rule out
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.
Retain SELL with a revised target price of `93
We maintain our SELL rating on GSPL given (1) stock is trading above our revised DCF-based target
price of `93 (`92 previously) 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 23.3% based on1HFY12 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 `9.1, `8.6 and `10 from `8.5, `8.4 and
`10.3 to reflect (1) lower gas transmission volumes, (2) 2QFY12 results and (3) other minor
changes. We model gas transmission volumes for FY2012E, FY2013E and FY2014E at 36 mcm/d,
38 mcm/d and 42 mcm/d, respectively versus 36 mcm/d in 1HFY12 and 35.6 mcm/d in FY2011.
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