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Earnings beat on higher transmission margin, volume slightly lower

GSPL’s 2QFY24 standalone EBITDA was INR 4.1bn, slightly higher than JMFe/consensus of INR 3.5bn/ INR 3.7bn due to higher transmission margin while volume was a tad lower. Hence, PAT was also higher at INR 5.3bn vs. JMFe/consensus of INR 4.1bn/ INR 4.6bn, aided by slightly higher other income. Implied transmission EBITDA margin was higher at INR 1,433/tcm (vs. INR 1,221/tcm in 1QFY24) as weighted average tariff was higher QoQ at INR 1,750/tcm in 2QFY24 probably due to implementation of unified tariff; cash opex was also lower. Transmission volume was also up 2.8% QoQ at 30.2mmscmd, though 2.6% below JMFe of 31mmscmd, primarily on account of pick-up in gas demand in fertiliser, CGD, power and other segments, while it was partly offset by decline in demand in refinery/petchem segment. We maintain BUY (unchanged TP of INR 345) as most of GSPL’s value is driven from its stake in Gujarat Gas (GGas), whose business we like as we expect its volume growth to sustain in the medium to long term.

* EBITDA beats expectation on account of higher transmission margin: GSPL’s 2QFY24 standalone EBITDA, at INR 4.1bn, was slightly higher than JMFe/consensus of INR 3.5bn/ INR 3.7bn due to higher transmission margin while volume was a little lower. Hence, PAT was also higher at INR 5.3bn vs. JMFe/consensus of INR 4.1bn/ INR 4.6bn, aided by slightly higher other income. Implied transmission EBITDA margin was higher at INR 1,433/tcm vs. JMFe of INR 1,220/tcm (and higher vs. INR 1,221/tcm in 1QFY24) as weighted average tariff was higher QoQ at INR1,750/tcm in 2QFY24 (vs. INR 1,604/tcm in 1QFY24) probably due to implementation of unified tariff; cash opex was also lower at INR 317/tcm (vs. INR 383/tcm in 1QFY24).

* Transmission volume up 2.8% QoQ at 30.2mmscmd, but a tad below JMFe of 31mmscmd: Transmission volume was up 2.8% QoQ at 30.2mmscmd, though 2.6% below JMFe of 31mmscmd, due to pick-up in gas demand in fertiliser, CGD, power and other segments, while it was partly offset by decline in demand in refinery/petchem segment. The break-up of 0.8mmscmd QoQ rise in volume (Exhibit 4) is: a) Fertiliser segment saw volume rise by 1.2mmscmd QoQ to 4.6mmscmd; b) CGD segment saw volume increase by 0.4mmscmd QoQ to 10.8mmscmd (driven by QoQ rise in GGas volume); c) Power segment volume rose by 0.1mmscmd QoQ to 4.1mmscmd; d) Others segment volume also went up, by 0.3mmscmd QoQ to 5.2mmscmd; and e) Refinery/Petchem segment witnessed decline in volume by 1.1mmscmd QoQ to 5.5mmscmd.

* Maintain BUY on valuation and due to our positive view on GGas’ business model: We maintain BUY (unchanged TP of INR 345) on valuation grounds, and as most of its value is driven from its stake in GGas and we have a positive view on GGas’ business as we expect its volume growth to sustain in the medium to long term. Our TP of INR 345 comprises: a) INR 171 for the existing pipeline business based on a DCF valuation, b) INR 169 for its 54.17% stake in GGas based on a 40% discount to CMP and c) INR 6 for its 27.5% stake in Sabarmati Gas based on 10x FY22 PAT. At CMP, GSPL is trading at 1.4x FY25E P/B (3-year avg: 1.7x).

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