GSPL - Volumes decline but take-or-pay income aids bottom-line - Centrum

Although, GSPL's transmission volumes declined by 8.1% QoQ at 28.6mmscmd, the company reported PAT of Rs1.3bn backed by takeor-pay income and additional other income. Sequential volume decline is attributed to the decline in KG D6 volumes which is likely to continue at least for the next few quarters. Average transmission tariffs soared 10.0% QoQ at Rs993/'000scm which can be attributed to the income from take-or-pay contracts. The company is yet to implement new tariffs based on the PNGRB tariff order. We believe the incremental volume growth is likely to be muted due to declining KG D6 volumes and the notified tariffs have been factored in the current valuations which do not provide meaningful upside from current levels. Maintain 'Neutral'.

Transmission volumes decline, average tariffs move up: Decline in KG D6 volumes impacted GSPL's transmission volumes which were down 8.1% QoQ at 28.6mmscmd. However, average transmission tariffs surged 10.0% QoQ at Rs993/'000scm which can be attributed to income from take-or-pay contracts and short distance transmission.

Other income offers further support to bottom-line: Depreciation went up by 5.4% YoY and 5.6% QoQ at Rs464mn due to capex on new pipelines. The interest cost remained flat at Rs316mn during Q2. Higher cash balance on the books led to higher other income which went up by 35.4% YoY and 22.6% QoQ at Rs185mn. Overall, despite lower transmission volumes, higher average tariffs and higher other income led to 2.7% YoY and 6.4% QoQ jump in bottom-line at Rs1.3bn.

New tariffs not yet implemented: GSPL's transmission volumes are likely to decline further with the drop in KG D6 volumes; but take-or-pay contracts will support the earnings. GSPL's new tariffs were notified by the PNGRB regulator in September, but the company has not implemented it yet. Also, the one time negative impact due to the revision in tariffs is not known. GSPL's volume growth is dependent on KG D6 production and incremental LNG imports. We believe the growth will kick start only after PLNG's Dahej capacity expansion by end 2013. Till that time volume growth is likely to remain muted. The notified tariffs have been factored in the current valuations which do not provide meaningful upside from current levels. Thus we maintain our 'Neutral' rating on the stock with a price target of Rs75 (based on average of P/E based price target of Rs66 and DCF based price target of Rs84).

Source : Equity Bulls

Keywords