GSPL - Q3FY12 Result update/Estimate change - Centrum

Disappointing Q3 volumes; to be better from Q1FY13

GSPL reported better than expected numbers buoyed by higher average transmission tariffs though transmission volumes were a tad lower. Due to lower off-take from power consumers, refineries and the steel segment volumes were 6.9% lower sequentially at 32.8mmscmd. However, due to longer distance transmission and take or pay contracts, average transmission tariffs were up 7.6% QoQ at Rs899/,000scm. Management expects transmission volumes to go up from Q1FY13E due to incremental spot LNG imports by its parent GSPC.

- Lower volumes, yet higher transmission tariffs: GSPL reported 1.4% YoY and 2.1% QoQ decline in revenues primarily due to lower transmission volumes. Transmission volumes declined by 7.3% YoY and 6.9% QoQ at 32.8mmscmd. However, revenues were supported by higher average transmission tariffs at Rs899/'000scm against Rs849/'000scm in Q3FY11 and Rs835/'000scm in Q2FY12. Transmission volumes were affected due to lower demand from power consumers (due to shutdowns), refineries (also due to shutdowns) and the steel segment.

- Lower interest, higher other income: Interest declined sequentially due to the repayment of some debt. On the other hand, other income increased due to dividend income from its CGD businesses (GSPC gas and Sabarmati Gas). The company thus reported PAT of Rs1.26bn, a decline of 2.5% sequentially.

- Work on new pipelines progressing: GSPL has formed two SPVs for the commissioning of long distance pipelines. Financial closure has been achieved for one of the SPVs comprising the Mehsana-Bhatinda and Bhatinda-Jammu- Srinagar pipelines. Financial closure for the second SPV comprising Mallawaram-Bhilwara pipeline is awaited. The company has already started its pre-engineering and route survey activities for these pipelines. As per regulations, these pipelines should be completed within three years of being awarded LOA (in this case by July 2014).

- Slight uptick in volumes in FY13E, surge expected in FY14E: The management is upbeat on higher volumes during FY13E backed by incremental LNG sourcing by the parent GSPC at Shell, Hazira terminal. This incremental LNG should add about 2.5-3.0mmscmd of additional volumes. The company is also awaiting notification of its transmission tariffs from the PNGRB regulator. We believe that GSPL's volumes would be slightly higher in FY13E, but higher volumes are expected in FY14E with incremental LNG regasification capacity at Dahej and Dabhol. We maintain 'Buy' on the stock purely from valuations perspective with a price target of Rs104 (average of DCF TP of Rs110 and PE based TP of Rs98).

Source : Equity Bulls

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