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GSPL: PNGRB's revised tariff order disappoints

* Event: On 20th Apr’24, PNGRB issued a tariff order for Gujarat State Petronet Ltd (GSPL)’s HP gas network. The tariff was reduced to INR18.1/mmbtu from INR34.0/mmbtu (provisional). GSPL had requested for an upward tariff revision to INR50.77/mmbtu. The key difference between GSPL and the regulator’s view stems from three heads: 1) capex (INR13.7/mmbtu reduction), 2) opex (INR8.7/mmbtu reduction), and 3) volume divisor (INR11/mmbtu reduction).

* Timeline: The revised tariff will be applicable from 1st May’24.

* Review of the decision: The tariff can be reviewed in the event that actual volume flows (GSPL’s submission: 26mmscmd) vary considerably from PNGRB’s assumption of 32mmscmd. Further, we believe that GSPL may appeal to PNGRB to review its tariff decision, though we do not expect any near-term relief.

* Earnings/TP impact: This decision is a major disappointment. We were building in a tariff decline of ~15% YoY in FY25, while the actual decline in tariff for the HP gas grid stands at ~47%. At this revised tariff, our FY25-26E EPS will see a sharp reduction of ~40-45%. The TP impact, though, will likely be lower (~18%) as the core business accounts for only INR180/ share out of our TP of INR450. We have a BUY rating on the stock.

* Our earnings estimates are currently under review.

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