Gujarat State Petronet - Revival On Course; Result Update Q2FY15 :: Edelweiss report link

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Gujarat State Petronet’s (GSPL) Q2FY15 PAT at INR1,157mn rose 2% YoY and 36% QoQ. Reported PAT came in at INR1,695mn and included one-time impact of INR800mn resulting from retrospective increase in tariffs since July 2012. Volumes moved up 14% YoY as refinery customers took advantage of the ~30% fall in spot LNG prices. The regulator allowed a 11% tariff hike effective July 12, 2014. The recent regulatory change to allocate top priority to city gas distribution will enhance one-third of the company’s volumes by 10-15% p.a. going forward. Moreover, the appellate tribunal is likely to pass a judgment in November 2014 on an appeal against earlier halving of tariffs by the mid-stream regulator. A ruling favourable to GSPL may increase tariffs even further. On better pricing and volume prospects, we raise our target price to INR126 (INR111 earlier).

A resounding tariff and volume-driven turnaround

Gas transmission volumes rose 14% YoY and 9% QoQ to 24.2mmscmd. GSPL’s refinery customers (25% of base), especially Essar Oil and Reliance Industries, in addition to ONGC, availed of the ~30% YoY fall in spot LNG import prices. Adjusting for one-off gains of INR800mn, transmission tariffs spurted 8% QoQ but fell 15% YoY to INR1.17/scm.

Volume demand growth prospects

• GSPL holds 25% stake in 3 city gas geographies, which account for one-third of its volume off-take. City gas volumes are poised to rise 10-15% p.a. as the government has given highest priority to city gas for allocating cheap domestic gas, which is currently priced at USD5.6-6/mmbtu versus LNG at USD11-14/mmbtu.
• Availability of gas, both LNG and cheap domestic gas, will also improve (see Chart 1).

As GSPL operates at 48% utilisation, benefits of operational leverage will be large.

LINK
https://www.edelweiss.in/research/Gujarat-State-Petronet--Revival-On-Course;-Result-Update-Q2FY15/27513.html