Accumulate Gujarat State Petronet; target Rs 87: PLilladher
Prabhudas Lilladher is bullish on Gujarat State Petronet (GSPL) and has recommended accumulate rating on the stock with a target price of Rs 87, in its September 12, 2012 research report.
September 12, 2012 / 14:17 IST
Prabhudas Lilladher is bullish on Gujarat State Petronet (GSPL) and has recommended accumulate rating on the stock with a target price of Rs 87, in its September 12, 2012 research report.
“GSPL is effectively charging Rs1032/tscm currently, translating into an decline in tariff of 12.48%. The order removes a long pending overhang on the stock as a fear over a significant tariff cut subsides. If we extrapolate the similar decline in tariff for the lower pressure pipeline, the assumed tariffs of Rs885/tscm would stand reduced to Rs780/tscm. The same would translate earnings downgrade of ~11% for the current fiscal and ~2.5% for FY14 (our earlier blended tariff of Rs800/tscm for FY14). Impact of the retrospective cut in tariff stands at Rs2.7bn (pre-tax) and refund on system use of gas, stands at Rs2.5bn (pre-tax). Thus, on a pre-share basis (post tax), combined impact of the same would be ~Rs6.3/share on the book value. We await more clarity from the management on the current tariff order, tariff order for the low pressure pipeline and volumes composition between high pressure and low pressure pipeline.” “GSPL’s fortunes are highly linked to availability of gas. On account of subdued domestic gas output, GSPL has not been able to deliver volume growth over the last 8-10 quarters. We believe the domestic natural gas production outlook is unlikely to see a material change in the near term, resulting in lack of significant volume growth for GSPL from the domestic sources. However, we expect positive news flows in terms of progress of Mundra terminal, RIL’s integrated development plan for KG D6 and increase in capacity of Hazira terminal plus expansion of Dahej terminal. On the proposed new pipelines of GSPL, there is no clarity on the same. We do not ascribe any value to new pipelines bagged by GSPL as there are uncertainties with regards to possible gas source over the same. We maintain over target price on the stock, awaiting management assessment of the order.”“Some of the areas where PNGRB has disputed GSPL’s tariff calculations are – 1) GSPL’s submission of tariffs, which were made in February 2012 using revised estimates/project costs, was inexplicably rejected. 2) November 2008 has been considered as the cut-off date from which regulated tariffs were applicable even though pipeline authorization was only received in March 2012 (effectively application of retrospective tariffs rather than from date of authorisation). 3) Gradual volume build-up benefit was not provided to GSPL as PNGRB considered full capacity of 30.46mmscmd for the tariff calculation. 4) Common carrier volumes taken at full volumes from the fifth year despite actual volumes being lower. 5) System-use gas and unaccounted gas loss has not been considered by PNGRB in calculation of volumes and regulator has asked GSPL to refund the SUG charges to the customers. 6) Starting net block is based on the calculated book based on high depreciation rate used by GSPL rather than depreciation based on effective life of the pipeline. We maintain our estimates and target price of Rs 87/share, says Prabhudas Lilladher research report.Bodies Corporate holding more than 50% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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