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Subsidiary Gujarat Gas drives strong Q3 growth

Gujarat State Petronet’s (GSPL) Q3FY21 standalone EPS was up 11% YoY driven by rise in volumes. Consolidated Q3 EPS jumped 48% YoY due to 99% YoY surge in EPS of subsidiary Gujarat Gas (GGL). GSPL’s transmission volumes are set to fall in Q4 due to surge in spot LNG price in Jan’21. Factoring-in the fall has led to cut in standalone FY21E EPS by 3%. We estimate GSPL’s FY22E volumes to be up 10% YoY driven by domestic gas output rise and spot LNG fall from Jan’21 highs. Upgrade in GGL’s FY21E-FY22E EPS by 15%-6% has led to upgrade in GSPL’s FY21E-FY22E consolidated EPS by 4%-5% and target price by 6% to Rs316 (39% upside). We reiterate BUY on GSPL, a cheaper play on GGL’s growth story.

* Standalone Q3 EPS up 11% YoY; rise in consolidated EPS steeper due to surge in GGL’s EPS: GSPL’s Q3FY21 standalone recurring EPS is up 11% YoY driven by 7% YoY rise in transmission volumes to 39.4mmscmd. Transmission tariff was down 13% YoY to Rs1,592/mscm as transmission expenses fell by 34% YoY to Rs334/mscm. Q3 consolidated recurring EPS was up 48% YoY as subsidiary GGL’s recurring consolidated profit surged 99% YoY. 9M standalone recurring EPS was down 4% YoY as volumes and tariff were down 2-6% YoY, while 9M consolidated EPS was up 30% YoY driven by 39% YoY rise in GGL’s 9M EPS

* Raise FY21E-FY22E EPS and target price: Surge in spot LNG price in Jan’21 led to sharp cut in gas volumes by GSPL’s largest customer. To factor-in the Q4 volume fall, we have cut GSPL’s FY21E transmission volumes by 7% leading to cut in its standalone EPS by 3%. We estimate GSPL’s FY22E volumes to rise 10% YoY to 40mmscmd as 7.5-8mmscmd of KG-D6 gas output rise will be transported by GSPL & spot LNG price plunge from Jan’21 high will see volumes recover. Upgrade in GGL’s FY21-FY22E EPS by 15%-6% has led to upgrade in GSPL’s consol. EPS by 4%-5% in the same years and target price by 6% to Rs316 (39% upside). Downside risk of cut in tariff and GGL being hit by competition being allowed remains.

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