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Transmission volume recovery drives 1Q earnings

• Gujarat State Petronet (GUJS)’s 1QFY26 EBITDA was 24% above our estimate, as transmission volumes came in 14% above estimate at 29.7mmscmd and opex stood below estimate. The transmission tariff was in line with our estimate at INR863/mmscm. While overall volumes were down 20% YoY, a sequential recovery was observed in refinery, petchem, and power volumes.
• Following the company’s announcement of the scheme of amalgamation and arrangement in Sep’24, under which GSPC, GUJS, and GEL will amalgamate with GUJGA, the swap ratio for GUJS was fixed at 10:13 (i.e., 10 shares of GUJGA (at an FV of INR2) will be issued for every 13 equity shares of GUJS, at an FV of INR10).
• Based on this swap ratio, we derive our TP for GUJS at INR327. We reiterate our Neutral rating on the stock.

Beat driven by robust transmission volumes

• GUJS’ 1QFY26 revenue/EBITDA stood 16%/24% above our estimates at INR2.4b/INR2b, as:
• The total volumes were 14% above our estimate at 29.7mmscmd, up 15% QoQ.
• The tariff came in line with our estimate at INR863/mmscm.
• EBITDA was also supported by a lower-than-estimated opex.
• CGD, ref-petchem, fertilizer, and power volumes declined sharply YoY.
• PAT came in 34% above our estimate at INR1.4b, as other income came in above our estimate.

Valuation and view

• We believe the company will post a 4% CAGR in transmission volumes over FY25-27 and we expect volumes to jump to ~33mmscmd in FY27, as it is a beneficiary of: 1) the upcoming LNG terminals in Gujarat and 2) an improved demand owing to the focus on reducing industrial pollution (Gujarat has five geographical areas identified as severely/critically polluted).
• Based on the announced share swap ratio of 10:13 (GUJS:GUJGA), we arrive at our TP of INR327. We reiterate our Neutral rating on the stock.

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