Buy Gujarat State Petronet Ltd For Target Rs.453 - ICICI Securities
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Domestic gas saves the day; will continue to do so
Gujarat State Petronet’s (GSPL) Q1FY22 standalone EPS is up 16% YoY driven by rise in transmission volumes and fall in interest cost. Consolidated Q1 EPS is up 2.3x YoY on 8.1x YoY surge in EPS of subsidiary Gujarat Gas (GGL).
Regassified LNG (RLNG) volumes transported in FY22E may be down 37% YoY due to high spot prices, but the domestic gas GSPL transports is set to jump 3.4x YoY ensuring FY22E volumes are up YoY (1% factored, but may be up 5%); share of domestic gas in volumes is up from ~15% in FY21 to ~42% in Q1FY22 and ~50% in Jul’21. We have kept FY22E EPS unchanged, but raised the target price by 23% to Rs453 (40% upside); stake in GGL is valued at its target price of Rs564 (22% below CMP) vs Rs436 earlier (25% below share price on 3-Jun’21). Retain BUY.
* Standalone Q1 EPS up 16% YoY; GGL drives consolidated EPS up 2.3x YoY: Q1FY22 standalone EPS is up 16% YoY driven by: 1) 11% YoY rise in transmission volumes to 36.8mmscmd, and 2) 52% YoY fall in interest cost to Rs140mn. Q1 transmission tariff is up Rs42/mscm YoY, but opex too is up Rs58/mscm. Q1 consolidated EPS is up 2.3x YoY driven by 8.1x YoY jump in EPS of GGL and rise in share of profit of associates to Rs210mn in Q1FY22 (vs loss of Rs86mn in Q1FY21).
* FY22E EPS unchanged: Transmission volumes increased to 39.43mmscmd in Jul’21 vs 36.8mmscmd in Q1 driven by rise in domestic gas transported from 15- 16mmscmd in Q1 to ~20mmscmd in Jul’21. 12-13mmscmd of KG-D6 gas (started in Dec’20) and 4mmscmd of Rajasthan gas (started in Apr’21) transported by GSPL is likely to drive 3.4x YoY surge in domestic gas transported to ~18.7mmscmd in FY22E vs ~5.5mmscmd in FY21.
High spot LNG prices are likely to mean 37% YoY fall in RLNG transported, but domestic volume surge may mean ~5% YoY rise in transmission volumes to 38.5mmscmd vs 1% YoY to 37mmscmd factored in our FY22E estimates. We keep FY22E standalone (upside possible) and consolidated EPS (downside possible) unchanged. Spot LNG surge may mean GGL is unable to fully pass on gas cost rise implying downside to our FY22E margin and EPS.
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