GSPL - No surprise, volumes decline yet higher tariffs benefit - Centrum

GSPL's transmission volumes declined further during the quarter by 4.7% at 27.3mmscmd due to declining KG D6 volumes. However, income from take-or-pay agreements helped the company maintain profitability. Average transmission tariffs jumped from Rs993/'000scm in Q2 to Rs1,043/'000scm in Q3 (take-or-pay component is embedded in avg. tariffs and is not available separately) thus benefitting overall performance. Income from the sale of electricity was lower due to the seasonality factor. The company is yet to receive communication from the PNGRB regulator regarding the application of new tariffs. We do not foresee any key triggers in the near term except monetization of CGD initiatives and hence maintain our 'Neutral' rating on the stock.

Volume decline continues but average tariffs rise: GSPL has been under pressure due to continuous decline in KG D6 volumes which is impacting its business. During Q3 too, GSPL's transmission volumes declined 4.7% QoQ and 16.8% YoY at 27.3mmscmd. Simultaneously, average transmission tariffs increased due to income from take-or-pay contracts which jumped by 5.0% QoQ and 16.0% YoY at Rs1,043/'000scm thus benefitting overall performance. Income from the sale of electricity remained lower at Rs50mn against Rs160mn in Q2 due to the seasonality factor.

Higher depreciation, lower other income impact bottom-line: Depreciation jumped by 2.9% QoQ and 3.8% YoY at Rs478mn due to ongoing capex and capitalisation of new pipelines. Cash balance on the books is garnering higher other income which was down QoQ by 5.8% yet was up YoY by 10.7% at Rs175mn. Lower transmission volumes, lower income from sale of electricity and higher depreciation together led to 10.4% QoQ and 5.7% YoY decline in bottom-line at Rs1.2bn.

Awaits tariff clarification from PNGRB regulator: Devoid of any additional gas volumes from domestic sources and limitation of LNG re-gasification capacity, GSPL's transmission volumes are likely to remain flat or decline in the medium term. The company is awaiting clarification on notified tariffs from the PNGRB regulator, post which it will implement the new tariffs. However, there would not be any meaningful positive or negative impact of the new tariffs on the company. Monetisation of its CGD initiatives (GSPC Gas and Sabarmati Gas) remains the only catalyst in the near to medium term. 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

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