IGI Logo

Lower volumes offset by strong tariff

* Gujarat State Petronet (GUJS) reported marginal beat on our EBITDA estimate at INR3.3b with volumes of 24.6mmscmd (our est. at 27mmscmd; -34% YoY, -17% QoQ) being offset by strong implied tariff at INR1,656/scm (16% ahead of our est., +19% YoY, +9% QoQ) during 2QFY23.

* Volumes were hurt by the shutdown of ceramic units for over a month in 2QFY23. However, Spot LNG price in 3QFY23 to date has fallen to USD28.9/ mmBtu (v/s USD45/mmBtu in 2Q). A further cooling of this price will result in a volume recovery in the coming quarters. We remain optimistic on the volume growth for the company with a CAGR of ~14% over the next three years.

* PNGRB has already taken up a tariff review of GUJS' HPP grid to determine the new tariff and would adjust it for the new tax regime. The proposed capex stands at INR45.4b up to FY32E, which would facilitate the transportation of gas from newer LNG terminals and obviate the need for a tariff cut.

* The stock is trading at a P/E of 12x FY24E EPS INR19.3 and EV/EBITDA of 7.7x. Return ratios are expected to be at 10-11% during FY23-24. We maintain our BUY rating with a TP of INR319, implying an upside potential of 34%.

Marginal beat on EBITDA; volumes lower than expected

* GUJS’ total volumes were below estimate at 24.6mmscmd (-34% YoY, -17% QoQ) during 2QFY23.

* EBITDA was at INR3.3b (est. of INR3.2b, -12% YoY, -7% QoQ), with implied tariff at INR1,656/scm. PAT was at INR3.1b (est. of INR2.1b, -5% YoY, +33% QoQ).

* The company had a total outstanding debt of INR48m as of Sep’22.

* For 1HFY23, GUJS’ revenue stood at INR8.1b (down 9% YoY), EBITDA was down 8% YoY to INR6.9b, and PAT was at INR5.5b (-4% YoY).

* Volumes declined 27% YoY to 27mmscmd, with implied tariff at INR1,590 (+25% YoY) in 1HFY23.

Sectoral volume details

* CGD volumes increased to 8.7mmscmd (-34% YoY, -20% QoQ).

* Fertilizer volumes were at 3.7mmscmd (+9% YoY, +11% QoQ).

* Power/ref-petchem volumes stood at 0.4/7.9mmscmd (-76%/-13% QoQ).

* Volumes from others stood at 3.9mmscmd (-39% YoY, -13% QoQ).

Valuation and view – maintain BUY

* The available LNG capacity in Gujarat is expected to grow 55% to 42.5mmtpa over the next 3–4 years. Most of this volume is likely to flow through GUJS’ network. We believe the company could see a 14% CAGR in transmission volumes over the next three years.

* We reiterate our belief that GUJS’ volumes would jump to ~40mmscmd in FY24E as the company is also a beneficiary of: a) the upcoming LNG terminals in Gujarat, b) increased demand owing to the focus on reducing industrial pollution – Gujarat has five geographical areas (GAs) identified as severely/ critically polluted, and c) the commissioning of the Mehsana–Bhatinda pipeline.

* Investments in GUJGA and Sabarmati Gas at a 25% holding discount provide a valuation of INR223. Valuing the core at 5x, adj. FY24E EPS at INR18.1, and adding the value of investments, we arrive at our TP of INR319. We maintain our BUY rating on the stock.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer