>GUJARAT STATE PETRONET LTD (GSPL)

Volumes under pressure, tariffs improved….


 GSPL's Q4FY12 result is better than our estimates. The company reported a PAT of Rs.1.29 Bn as against our estimate of Rs.1.2 Bn.


 The Company's bottom line has increased mainly on account of higher transmission tariffs. A higher transmission tariff has offset lower gas volumes.


 We would like to highlight that in Q4FY12 tariffs have increased by 21.1% YoY and 6.3% QoQ to Rs. 956.2/KSCM. This is primarily due to increased long distance transportation of gas which typically earns
higher gas transmission charges and partly due to take or pay clause thereby pulling the averages up.


 Gas transmission volume had fallen by 6.1% QoQ and by 11.6% YoY to 31.1 MMSCMD in Q4FY12, mainly due to fall in domestic supply of gas. In FY12E, transmission volumes are lower due to lower off take by few power plants which were undergoing maintenance.


 In Q4FY12, GSPL has made a total equity investment of Rs.400 Mn in two companies - GSPL India Gasnet Ltd. (Rs. 200 Mn) and GSPL India Transco Ltd.


 In FY13E, GSPC (holding company) is expected to import one cargo of RLNG per month which will improve GSPL's volumes (2.5-3 mmscmd).


 The recent fall in international LNG prices has resulted in higher demand from refineries and steel plants but demand from power plants is yet to pick-up.


 The Company recorded flat operating margin on sequential basis. In Q4FY12, the operating margin was 91.2% as against 91.9% in Q3FY12 and 90.0% in Q4FY11.


 On a quarterly basis, the Company reported an EPS of Rs.2.30 and CEPS of Rs.3.13.


 In FY11, PNGRB had granted authorization for setting up the pipeline, which will be laid from Mallavaram in Andhra Pradesh to Bhilwara in Rajasthan, Mehsana in Gujarat to Bhatinda in Punjab and Bhatinda to Jammu. It will have capacity to carry ~ 95 MMSCMD of gas. We believe it will take at least three years for completion. On a conservative note, we have not considered this for our valuations.


 Key risk remains in terms of capping of margins by PNGRB at 18% pretax ROCE. Based on Q4FY12 rates GSPL is earning around 27.3% pre-tax ROCE.


 GSPL has declared a dividend of Rs.1/Share for FY12.


 We expect GSPL’s earnings to remain flat at Rs.7.8 in FY13 & FY14 respectively. This is mainly due to lower gas supply and concern of tariffs as directed by PNGRB.


 The recent correction in the stock price has made the valuations attractive. Hence, we retain Accumulate rating on GSPL with a revised target price of Rs. 72/Share (earlier Rs.92). The downward revision in price target is mainly on account of 1). Concern of tariff cut indicated by PNGRB and 2). Falling domestic gas supply.