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Weak volumes & tariffs impact core performance; dividend income drives reported earning

GSPL's Q2FY25 performance presents a weak picture, EBITDA and PAT witnessed YoY de-growth of 53%/26.8%; EBITDA was down 35.9% on lower volumes and tariffs but PAT was up 83.6% QoQ on higher other income. Volumes at 29.68mmscmd was lower than our expectations of 34.1mmscmd, on lower-than-expected volumes across sectors. However, the tariffs at (Rs 0.831/scm) were lower than our expectations of (Rs 0.997/scm). In Q2FY25, GUJGA volumes declined at large at Morbi which impacted the CGD demand for GSPL. In GUJGA’s recent concall, they have highlighted an increase of 0.6-0.8mmscmd at Morbi uplifting volumes for GSPL in Q3FY25. While managing cost pressures remains crucial, weaker volume growth and lower tariffs, we maintain a NEUTRAL rating on GSPL with a target price of Rs 434/share.

Result Highlights

* EBITDA/PAT at Rs 1.9/3.9bn, down 53%/26.8% YoY on a sharp decline in volumes and tariffs; and EBITDA was down 35.9% on lower volumes and tariffs but PAT was up 83.6% QoQ on higher other income. The EBITDA performance is lower than our estimates and consensus on lower-than-expected volumes and tariffs. The other expenses declined sharply (as gas transmission expenses in Q2FY25 was at Rs 200mn vs Rs 189mn in Q1FY25 and Rs 760mn in Q2FY24).

* Transmission revenues stood at Rs 2,269mn adjusted for gas transmission expense (Rs 200mn) was down by 48.6% YoY and 30.2% QoQ.

* The overall volumes for the quarter at 29.68mmscmd, were down 1.7%YoY and 18.4% QoQ (Q1FY25 – 36.39mmscmd and Q2FY24 – 30.2mmscmd), was weaker than our est. of 34.1mmscmd on lower-than-expected volumes from across sectors. The volumes sequentially declined by 6.7mmscmd mainly hit by power sector which was down by 3.2mmscmd, CGD by 2.2 and refinery by 1.0. Overall, the YoY decline was just 0.5mmscmd, with large decline in power sector, while refinery increase of 1,.0mmscmd compensating decline in CGD and fertilizer.

* EBITDA/PAT Rs/mmscmd at 83/65 was down 51.4/52.1% YoY and 12%/21.4% QoQ on a sharp decline in tariffs.

* The gas transmission expense of Rs 200mn, which is a pass-through, adjusted for the same which has resulted in a tariff of Rs 0.831/scm (our expected at 0.997), which has declined by 47.7% YoY and 15.4% QoQ.

* The other income at Rs 2.94bn was up 10.3% YoY and ~8x QoQ on higher dividend income from Gujarat Gas.

Valuation

GSPL’s FY24-27e EBITDA would decline at a CAGR of -4.1% despite a 7.1% volume growth due to a sharp fall in tariffs. At the CMP, the stock trades at 15.7x/14.4x FY26e/FY27e EV/EBITDA and 1.9x/1.8x P/BV (excl. investments, it trades at 7.3x/6.4x FY25e/FY26e EV/EBITDA and 1.0x/0.9x P/BV). We maintain a NEUTRAL rating on the stock, with a TP of Rs 434, valuing it on a sum-of-parts basis (core business at Rs229 at 7.5x EV/EBITDA, investment value in GUJGA at Rs183, Sabarmati Gas at Rs 4 and cross-country pipeline at Rs 18 (1x BV).

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