>GSPL: 1QFY2011 Result Update

GSPL reported marginally lower-than-expected set of numbers for 1QFY2011 due to lower-than-expected transmission tariffs and volumes during the quarter. Bottom-line increased 30.6% yoy to Rs105.1cr (Rs80.5cr), which was below our expectation of Rs110cr. However, given the company’s strong growth potential and attractive valuations, we recommend an Accumulate rating on the stock.

Transmission volume surges, realisation dips: In 1QFY2011, GSPL recorded a 19.4% yoy jump in revenues to Rs252cr (Rs211cr), lower than our estimate of Rs266cr. Transmission volume, which surged 43.4% yoy to 36.3mmscmd (25.3mmscmd), came in below our expectation of 38mmscmd. Average transmission realisation decreased 16.7% yoy to Rs762/’000scm (Rs915/’000scm) and was below our expectation of Rs770/’000scm.

Outlook and Valuation: GSPL is a leveraged play on the increasing gas demand in the country’s hydrocarbon capital, Gujarat. Given the advantage of its location, GSPL is likely to be the key beneficiary of improving gas supplies in the country due to the rise in domestic production and LNG imports. We estimate GSPL’s volume growth to continue on favourable spot gas dynamics and ramp up of gas production from the KG-basin. We estimate GSPL's transmission volume to post
22.9% CAGR over FY2010-12E, from 32mmscmd to 48.3mmscmd. Our DCF-based target price stands at Rs120 in a base case scenario, where we have not assumed 30% PBT sharing with the Gujarat Government. In case GSPL starts contributing to GSEDS, our target price will be reduced to Rs84.

To read the full report: GSPL