Oil & Gas: Play on recovery in KG D6 gas ramp-up - Ambit

Gujarat State Petronet (GSPL) potentially faces re-negotiation/litigation risk from the take-or-pay clause under the gas transmission agreements (GTAs) that were signed with its consumers. Thus, we have not built in significant income from the take-or-pay clause in our estimates. We have factored in muted volume growth for the next 12-18 months, as we expect a back-ended ramp up in KG D6 gas production (17/27/45mmcmd in FY14/FY15/FY16 from 26mmcmd in FY13) and muted growth in LNG imports in FY14-15. However, volumes would recover in FY15 owing to: (a) ramp up in KG D6 volume from FY15 onwards, (b) expansion of Petronet LNG's Dahej capacity to ~12mmtpa by March 2014 (from 10mmtpa), and (c) expansion of Shell Hazira's LNG terminal capacity to 5mmtpa (from 3.5mmtpa). Despite our conservative assumptions, our valuation points to a 47% upside, and hence we reiterate our BUY stance. Visibility on the ramp up in KG D6 gas production would be the key trigger for the stock.

Source : Equity Bulls

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