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GSPL reported a 26% PAT beat in Q1FY25, led by lower opex on reversals in unaccounted gas costs and 11% higher-than-expected book tariff realization due to take or pay income. SA EBITDA/RPAT fell 20%/17% QoQ to Rs3.0bn/Rs2.1bn (down 11%/8% QoQ) due to levy of lower tariffs from May24. Gas transmission volume rose 9% QoQ to 36.4mmscmd (up 24% YoY, inline) with Power/CGD offtake up by 3.4/1.2mmscmd QoQ, while refinerypetchem fell by 1.2mmscmd. We raise FY25-26E SA EPS 11-12% each, factoring in the current tariff run-rate. The next APTEL hearing on the PNGRB tariff order is expected by Aug-24 end. We raise GSPL’s Sep-25E TP by 10% to Rs370/sh on roll-over to Sep-26E in the core business and building Gujarat Gas’s slightly revised Sep-25E TP of Rs500/sh (vs Rs475/sh earlier) in the SoTP; retain ADD.

Result Highlights

GSPL’s Q1FY25 SA revenue/EBITDA/PAT of Rs3.54/3.01/2.12bn fell 20%/11%/8% YoY and 30%/20%/19% QoQ. Average book tariff realization also fell, by 34% QoQ to Rs0.98/scm, but includes take or pay income. Other Expenses fell 59% YoY/67% QoQ to Rs167mn, while employee cost rose 10% YoY but fell 34% QoQ to Rs177mn. For Q1, GSPL’s gas transmission expense fell 60% YoY and 64% QoQ to Rs189mn. Depreciation rose 1% QoQ to Rs490mn. Electricity income was up 2% YoY to Rs103mn. EBITDA/scm fell 27% QoQ (a 23% beat) to Rs0.91 (down 28% YoY). Other Income was higher than expected, at Rs328mn, up 82% YoY. Tax rate was in-line at 25.2%. The share of loss from associates/JVs expanded to Rs149mn from Rs78mn QoQ. PNGRB had revised down GSPL’s HP gas grid’s levelized tariff to Rs18.1/mmbtu from Rs34.0/mmbtu GCV wef 1- May-24.

Management KTAs

Other Expenditure was lower in Q1FY25 as line-pack and lost & unaccounted gas cost saw reversals, but such costs can increase going ahead. Employee cost was down QoQ as Q4 had year-end payouts. Gas transmission expense fell, as corresponding volumes dropped. Current volumes are >30mmscmd. The company saw increase of Rs20-30mn QoQ in the take or pay income in Q1FY25. Capex of Rs500-600mn in Q1 was not sizable, but the company plans to award projects and increase the capex run-rate, albeit H2FY25 onward at the earliest. The next hearing at APTEL, on the PNGRB tariff order, is likely by Aug-24 end.

Valuation and Outlook

We value GSPL on an SOTP basis, with TP of Rs370/sh, comprising of the core business (using the DCF method) at Rs108/sh (implied Sep-26E target SA P/E of ~8.5x), Gujarat Gas's stake at Rs231/sh, building in a 30% holdco discount to our FV/TP, and Rs31/sh derived from the stake in Sabarmati Gas and new pipelines. Key risks: Adverse oil-gas prices/demand, industrial slowdown, cost overruns, project delays, and regulations.

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