Gujarat State Petronet Ltd. share price target

13 February 2020 Higher-than-expected volume offset the lower implied transmission tariff and led to in-line EBITDA in 3QFY20. The QoQ decline in volume was primarily led by the refinery/petrochemical segments. We expect low LNG prices to spurt demand, especially from the power segment post monsoon. The company is a direct beneficiary of the upcoming LNG terminals in Gujarat and the renewed focus on reducing industrial pollution. GUJS reported in-line EBITDA of INR3.8b (3% miss; +8% YoY, -13% QoQ) as higher-than-expected transmission volume of 36.9mmscmd offset the lower implied tariff. Implied tariff declined from INR1,420/mscm in 3QFY19 and INR1,461/mscm in 2QFY20 to INR1,331/mscm in the quarter. PAT of INR2.2b was in line with our estimate (+28% YoY, -51% QoQ). The company had written back tax in the previous quarter as it moved to the new lower tax regime. Consumption from the refinery/petrochem segment continued to be the highest at 32% but slid from 12.9mmscmd in 2QFY20 to 11.8mmscmd in the quarter.

Gujarat State Petronet ltd. (GSPL) is the second largest natural gas pipeline operator and gas transporter after GAIL with 2621kms of gas network in Gujarat handling volume of 38mmscmd (Million Metric Standard Cubic Meter per Day). This ensures annuity earnings based on fixed transmission tariffs given steady volume for gas...

Gujarat State Petronet is primarily engaged in transmission of natural gas through pipeline on an open access basis from supply points to demand centers.

Our interaction with the Gujarat State Petronet (GSPL) management reinforces our core investment thesis.

Gujarat State Petronet's (GUJS) Q2FY20 EBITDA outperformed estimates at Rs 4.4bn (15% YoY), backed by higher margins of Rs 1.2/scm (Rs 1.1/scm estimated).

9 November 2019 Standalone net sales were 6% higher than our est. at INR5.4b (-10% YoY), led primarily by higher than expected transmission volume and marginal improvement in implied tariff. Revenue in 2QFY19 included one-time retrospective adjustment in tariff; resulting in gas transportation in the quarter declining 10% YoY at INR5.3b. EBITDA was down 15% YoY at INR4.4b and PBT down 15% YoY (+16% est. led by lower interest cost) at INR3.9b. The company re-measured its DTL of INR12.8b, in line with adoption of the new lower tax rate. PAT was up 41% YoY to INR4.5b. EBITDA was down 2% YoY at INR8.4b, while PBT was flat YoY at INR7.

Gujarat State Petronet's (GSPL) Q1FY20 results were a beat to our estimates owing to higher transmission volumes. Revenue was up 31% YoY to Rs5.1bn, EBITDA increased by 16.9% YoY to Rs4.0bn and PAT grew by 42.7% YoY to Rs2.1bn. The company's...

Volumes increase due to higher CGD, industry offtake GSPL reported healthy natural gas transmission volume growth of 4.8% YoY to 38.2 mmscmd. On a QoQ basis, higher volume offtake from city gas distribution (CGD) sector, power and refining/petchem sector led to 17.9% QoQ increase in volumes. However, we build in lower volumes, going forward, on account of the estimated ramp up from private refinery petcoke gasification project. This would impact GSPL's volume growth in the near term. In the medium term, volumes from CGD and power sector will negate,...

We like the GSPL owing to the (1) Robust volume outlook on the back of strong demand from CGD entities and the power sector (2) Smoothening of cyclicality in its earnings, post acquisition of a controlling stake in Gujarat Gas (3) Steady cash flows (FCF of Rs 38.73 bn over FY20-23E) from transmission business which will turn the company's position to a net cash one. We value the transmission business using Discounted Cash Flow (DCF) at Rs 150/sh. To this, we add Rs 97/sh as value of its investments in Gujarat Gas, Sabarmati Gas and other investments to arrive at the target price of Rs 247/sh. We maintain BUY on GSPL post a better than estimated performance in 1QFY20. We expect benign spot LNG prices (1) To drive strong volume growth from industrial customers and (2) Encourage RIL to continue to using LNG. We raise our volume estimates for FY20/21 by 11.4/13%, thus our SOTP based TP to Rs 247/share.

Volumes decline; to go down further on lower Reliance offtake The quarter witnessed disappointing natural gas transmission volumes, below our estimates. Volumes declined 5.1% YoY to 32.4 mmscmd. On a QoQ basis, lower volume offtake of LNG led to 6.1% QoQ decline in volumes. We build in lower volumes in FY20E than FY19E on account of estimated ramp up from RIL's petcoke gasification project. However, higher volumes from the 5 MMTPA Mundra LNG terminal will negate, to some extent, the negative impact on volumes. Also, volumes from Petronet LNG's...