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Weaker than expected volumes; a decline in tariff impacts the earning

Our View

GSPL's Q1FY25 performance presents a weak picture, EBITDA and PAT witnessed YoY de-growth of 10.5%/7.5% and 20.4%/18.8% QoQ despite an increase in volumes due to a sharp decline in tariffs. Volumes at 36.4mmscmd was lower than our expectations of 39.8mmscmd, on lower-than-expected power and refinery sector demand. However, the tariffs at (Rs 0.982/scm) were close to our expectations of (Rs 0.972/scm). There was strong power sector volumes in May’24 which started to decline from Jun’24 as summer peak demand came down. In Q2FY25, GUJGA highlighted of a 30-40% decline in Morbi volumes which will further reduce volumes for GSPL. While managing cost pressures remains crucial, we maintain a NEUTRAL rating on GSPL with a revised target price of Rs 353 (earlier Rs 329).

Result Highlights

* EBITDA/PAT at Rs 3.0/2.1bn, down 10.5%/7.5% YoY on a sharp decline in tariffs despite better volumes; and 20.4%/18.8% QoQ again on lower tariffs despite an increase in volumes. The EBITDA performance is lower than our estimates on lower-than-expected volumes while tariffs estimates stood closer to ours. The other expenses declined sharply (as gas transmission expenses in Q1FY25 declined to Rs 189mn vs Rs 521mn in Q4FY24 and Q1FY24 of Rs 475mn).

* Transmission revenues stood at Rs 3,250mn adjusted for gas transmission expense (Rs 189mn) was down by 60.2% YoY and 63.7% QoQ.

* The overall volumes for the quarter at 36.39mmscmd, were up 23.9%YoY and 9.1% QoQ (Q4FY24 – 33.37mmscmd and Q1FY24 – 29.37mmscmd), was weaker than our est. of 39.8mmscmd on lower-than-expected power and refinery sector demand. The volumes sequentially increased by 3mmscmd mainly driven by power sector which was up by 3.4mmscmd and CGD by 1.2. Overall, the YoY increase was 7mmscmd, driven by all sectors – power/CGD which was up 2.3/2.2mmscmd; fertilizer/refinery 1.0/0.9; others 0.5.

* EBITDA/PAT Rs/mmscmd at 83/58 was down 27.8/25.4% YoY and 27%/25.6% QoQ on a sharp decline in tariffs.

* The gas transmission expense of Rs 189mn, which is a pass-through, adjusted for the same which has resulted in a tariff of Rs 0.982/scm (our expected at 0.972), which is lower 31.6% YoY and 34.3% QoQ.

* PNGRB had issued a tariff order on 19th April‘24 where the levelized tariff of GSPL’s HP gas was revised from Rs 34/MMBTU to Rs 18.10/MMBTU. The revised tariff was applicable from 1 st May’24.

* The other income at Rs 328mn was up 81.8% YoY and 10.7% QoQ.

Valuation

GSPL’s FY24-26e EBITDA would decline at a CAGR of -5.5% despite a 10.2% volume growth due to a sharp fall in tariffs. At the CMP, the stock trades at 14.3x/12.5x FY25e/FY26e EV/ EBITDA and 1.7x/1.6x P/BV (excl. investments, it trades at 6.4x/5.3x FY25e/FY26e EV/EBITDA and 0.8x/0.8x P/BV). We maintain a NEUTRAL rating on the stock, at a revised TP of Rs353 (329 earlier), valuing it on a sum-of-parts basis (core business at Rs182 at 6.0x EV/EBITDA, investment value in GUJGA at Rs171).

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