GSPL’s 31% EBITDA growth in 3QFY18 was driven by a 28% yoy increase in transmission volumes to 33.6mmscmd. Despite sharp increase in spot LNG price during quarter, volume has grown due to (1) continuous off-take from RIL’s ROGC (2) increase in PLFs of gas-based power plants and (3) strong volume offtake from a few large customers. RIL starting petcoke gasifiers in 1HCY18 will lead to lower transmission volume and that is captured in our as well as street’s volume assumption for FY19E/20E. Government push towards higher gas in the energy mix, regulatory tailwinds (possible tariff hike) and new domestic energy sources (LNG terminals, particularly Mundra and ONGC) will drive 6% volume CAGR and 11%/13% EBITDA/EPS CAGR over FY18E-FY20E. We maintain LONG with Mar’19 DCF-based TP of Rs 245 which includes Rs 40/share for GSPL’s stake in GGAS/SGL.
Tapering of RIL volume is known; CAIRN and Mundra LNG will replenish:
Current volume is still ~33mmscmd but will go down in next 2-3 quarters as RIL commissions its petcoket gasifier. However, volumes should rebound in H2FY19 with an increase in domestic gas production from multiple domestic sources – Cairn India (3mmscmd). Also commissioning of Mundra LNG in 1QFY19 will add some volume to GSPL grid. We are building marginal decline in volume in FY19E to 30mmscmd.
Will regulatory action drive EBITDA growth in FY19? :
9MFY18 EBITDA growth of ~25% is largely driven by volume growth. We & street have already built tariff increase of ~10-20% from FY19E onwards. PNGRB has set up a committee to explore global best practices for various contentious variables (SUG, inflation, future capex) in the tariff framework. With establishment of full board at PNGRB, decision on tariff should come in next few months and this should support EPS growth in FY19E.
In-line EBITDA, lower interest cost offset by decline in other income:
3QFY18 transmission volumes increased 28% yoy/6% qoq to 33.6mmscmd and were 2% above EE. Tariffs were in-line with EE and improved 2%/1% yoy/qoq to Rs 1,122/tscm. Revenues grew 31% yoy and came 2% above EE. Employee cost declined 24% yoy while other expenses increased by 69% yoy as it paid Rs 170mn for using RIL pipeline in Bharuch because of its compressor capacity constraint. This restricted EBITDA growth at 31% yoy to Rs 2.97bn. Interest expenses declined 67% yoy on lower long-term debt which was offset by decline in other income; down 32% yoy to Rs 121mn.Tax rate stood at 30% (down ~490bps yoy). PAT at Rs 1.8bn was up 53% yoy and came 2% below EE on higher volumes and lower interest costs and tax expenses.
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