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We downgrade GSPL to REDUCE from Buy, as the long-awaited HP grid tariff revision came as a major negative surprise. Regulated tariff was set 47% lower from Rs34/mmbtu, at Rs18.1/mmbtu (GCV, wef 1-May), and was a far call from the Rs50.8 sought by GSPL. The effective cut vs FY19 blended book rate is hence ~37% (assuming ~20% LP vol. share) vs our built-in ~20%. PNGRB’s assumptions deviated on future capex, volume divisor & opex vs GSPL’s, while the prospective impact was Rs11/mmbtu vs earlier rate. FY25/26E standalone earnings hence get cut 16%/21% and the DCF-SOTP based TP clipped by Rs45/sh (11%), to Rs370/sh (with rollover to Mar-26). Mgmt said it is studying the ‘order’, though given inordinate delays and the tariff model’s long-term nature, the outlook has turned weak despite tailwinds like lower LNG prices.

HP grid tariff revised down by 47% vs the assumed ~30% implied rate

PNGRB’s tariff order for GSPL’s high-pressure gas grid held a huge negative surprise, with a 47% cut in regulated rate to Rs18.1/mmbtu from Rs34.0. The 3-year delay caused a Rs11.1/mmbtu impact from prospective implementation with higher past volumes and economic life extension also playing a part. GSPL’s own tariff filing sought an even higher rate at Rs50.8/mmbtu, driven by higher future capex & opex and lower volumes, which were all refuted by the PNGRB. Last-mile connectivity capex under O&M and various projects were disallowed, while SUG and unaccounted gas expenses were substantially reduced in opex, assuming lower gas prices. Volume divisor was raised to 31.7mmscmd for the future (based on FY20-24 rate) vs 26mmscmd filed by GSPL.

Outlook weakens given delays in tariff revision; GSPL needs to up its capex

Inordinate delays in pipeline tariff revision and the long-term nature of the pipeline tariff model, with multitude of assumptions and subjectivity, has weakened GSPL’s outlook despite sectoral tailwinds like higher gas supplies, rise in demand and lower LNG prices. The volume-tariff trade-off, potential lack of major expansion options in Gujarat, and the last 5 years being high on volume and low on capex also keep the future tariff estimates cloudy. The only respite would be higher capex (in FY24E, capex rose to Rs6-7bn vs Rs1- 2bnpa earlier) and GSPL aggressively pursuing capacity expansion with some leverage.

Core business weak, though SOTP valuation support should partly aid

The effective tariff cut vs the FY19 blended book rate is ~37% (assuming ~20% LP volume share) vs our earlier assumption of ~20%. FY25E/26E EPS is hence down 16%/21% (11M impact for FY25). We keep our LT volume and capex-opex estimates unchanged, but our DCF-based TP is down ~11% to Rs370/sh, with rollover from Dec25 to Mar-26. GSPL’s SOTP-based valuation has major contribution from the Gujarat Gas stake, on which though we have a Sell, with TP of Rs440/sh vs CMP of Rs545/sh. For GAIL, we do not see any material reading from this order (gas cost taken slightly higher).

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