IGI Logo

Better volume mix leads to higher realization

* Gujarat State Petronet (GUJS)’s 2QFY24 EBITDA, at INR4.1b, beat our estimate led by lower-than-expected other expenses. EBITDAM, at 90.5%, was 500bp higher than our estimate. Volumes, at 30.2mmscmd, were lower than estimated.

* Management highlighted that there has been an increase in HP volumes that led to better realization with LP volumes declining during the quarter. The implied tariff during the quarter was INR1,587/mmscm. We estimate a tariff of INR1,511/mmscm for FY24 and INR1,374/mmscm for FY25.

* Lower spot LNG prices would benefit GUJS’ volumes. Currently, the price is at ~USD18/mmBtu, up from ~USD13/mmBtu (in 2QFY24), which could hurt GUJS’ volumes. That being said, the management guided that volumes could remain tepid in the near term for the company.

* The proposed capex for the HP gas grid stands at INR45.4b up to FY32E, which would facilitate gas transportation from newer LNG terminals. Although the company’s HP gas grid is also up for tariff revision, there was no specific timeline provided for the same.

* Owing to the outperformance in 2Q, we raise our EBITDA/PAT estimates (mainly because of higher other income in 2Q) by 6%/29% for FY24 while keeping our FY25 estimates unchanged as of now. The stock is trading at a P/E of ~14x FY25E EPS of INR19 and EV/EBITDA of ~9x. We maintain our BUY rating with a TP of INR325.

Beat led lower other expenses, and higher other income

* Total volumes were below our estimate at 30.2mmscmd (+23% YoY)

* EBITDA was at INR4.1b (our est. of INR3.7b, +23% YoY), with an implied tariff of INR1,587/mscm.

* PAT was at INR5.3b (our est. of INR2.9b, +69% YoY) as other income (at INR2.7b) was higher than expected

* The company had implemented Unified Tariff (UFT) from 1st Apr’23. As of 30th Sep’23, the company had a deficit of INR127m on account of invoicing done as per UFT and entitlement as per the approved tariff.

* For 1HFY24, revenue was at INR8.5b (+5% YoY), EBITDA was at INR7.5b (+8% YoY) while PAT was at INR7.6b (+38% YoY). 1HFY24 EBITDA was 52% of its fullyear estimate of FY24.

* Volumes were at 29.8mmscmd (+10% YoY), while implied tariff stood at INR1,511/mscm (-5% YoY).

Sectoral volume details for 2QFY24

* CGD volumes increased to 10.8mmscmd (+25% YoY)

* Fertilizer volumes were at 4.6mmscmd (+25% YoY)

* Power/ref-petchem volumes were at 4.1/5.5mmscmd (+10x/-31% YoY)

* Other volumes stood at 5.2mmscmd (+34% YoY)

Valuation and view – maintain BUY

* The available LNG capacity in Gujarat is expected to grow 55% to 42.5mmtpa over the next 2-3 years. Most of this volume is likely to flow through GUJS’ network. We believe the company could post an 18% CAGR in transmission volumes over FY23-FY25.

* We expect GUJS’ volumes to jump to ~35mmscmd in FY25 as the company is also a beneficiary: a) the upcoming LNG terminals in Gujarat, b) improved 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 Phase-II of the Mehsana-Bhatinda pipeline.

* Investments in GUJGA and Sabarmati Gas at a 25% holding discount provide a valuation of INR209. Valuing the core at 7x adj. FY25E EPS of INR16.6, and adding the value of investments, we arrive at our TP of INR325. We maintain our BUY rating on the stock with a potential upside of 19%.

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412