Buy Gujarat State Petronet; target of Rs 104: Emkay

“GSPL reported results which were above our estimates. Revenue for the quarter was at Rs.2.8bn, decline of 8% YoY, mainly on account of drop in volumes during the quarter. EBIDTA during the quarter was at Rs.2.5bn, growth of 9.4% YoY, while net profit decline by 14% to Rs.1.3bn. Drop in profitability were mainly due to lower transmission volumes mainly from KG D6 gas.”

“Transmission tariff for Q4 FY12 grew by 25% YoY and 8.6% QoQ to Rs.0.98/scm, mainly on account of higher volume transported to longer route on which company received full tariff. Also company has received Take or Pay tariff on some of the lower volumes, resulting in better realisation for the quarter. However, transmission volume decline by 12.5% YoY and 5.1% on QoQ basis to 31.1mmscmd. Lower transmission volumes were mainly attributable to decline in KG D6 gas which affects the overall volume offtake. Considering the lower volumes from domestic fields we expect transmission volume at 32.8mmscmd and 33mmscmd by FY13E and FY14E respectively. However we expect supply deficit to continue in the future also and this can only be met by imported RLNG at the reasonable price.”

“The current volume growth for FY12E and FY13E is already priced in but due to expected reduction in KG D6 gas from current level of 34mmscmd would raised the concern on the future volume growth of the company. Hence we have lowered our TP by 9.5% to Rs.104 on the back of continuous volume drop. We believe current stock price have factored decline in volume as well as any cut in tariffs. However we don’t see stock to go below current level of Rs.62. The recent correction in the stock offers attractive valuations at 7.3x FY14E EPS and 1.1x P/Bv, maintain BUY,” says Emkay Global Financial Services research report.  

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