Gujarat State Petronet (GSPL) reported its Q1FY17 result, which were above our estimates. GSPL reported flat YoY growth in revenue to | 258.1 crore, above our estimate of | 247.6 crore. While gas transmission volumes increased 4% YoY to 25.1 mmscmd (I-direct estimate: 25.3 mmscmd), the realisation declined 4.7% YoY to | 1.1/scm (I-direct estimate: | 1/scm) . EBITDA increased 2.7% YoY at | 233.3 crore, above our estimate of | 212.6 crore, mainly due to lower-than-expected operational and maintenance expenses. Subsequently, PAT in the quarter increased 7.5% YoY to | 121.3 crore, above our estimate of | 103.1 crore.

Valuation : GSPL’s transmission business is expected to report steady volume growth in the backdrop of falling LNG prices due to lowering of gas prices and renegotiated LNG supplier contracts. Higher growth in domestic power demand due to favourable reforms, increased LNG capacity and lower gas prices would also add to incremental volumes, going forward. An upward revision of transmission tariffs by PNGRB in coming months would be a key positive for the stock. GSPL’s investments in CGD entities such as Gujarat Gas (25.8% stake) and Sabarmati Gas (27.5%) would also create value for investors in future. We value GSPL’s investments at | 34 per share. Subsequently, we have valued GSPL based on an SOTP basis and arrived at a price target of | 170.