Gujarat State Petronet's Q2FY19 results (Outperformer) - Scaling up
Q2FY19 highlights
- Recurring EBITDA of Rs4bn grew 33% yoy, driven by continued strength in transmission volumes to 35 mmscmd (+11% yoy, IDFCe 36 mmscmd) and sharply higher transmission tariff, with GSPL accounting for all of H1FY19 tariffs in this quarter.
- Adj PAT of Rs2.3bn was up 32% yoy, ahead of IDFCe Rs1.6bn. Reported EBITDA/PAT of Rs5.2bn/Rs3.1bn, up 73/77% yoy, helped by the higher tariffs of Q1 also accounted for in this Qtr (~Rs1.2bn)
- Continued delay in RIL Petcoke gasifier and higher gas demand from Power/CGD driving gas demand for GSPL, with start-up of Mundra terminal from Oct also a positive
- Blended tariffs (adj for Q1 prov) of Rs1.4/scmup31/27% yoy/qoq. We had factored these tariffs being accounted from Q3 onwards.
Key positives: Strong volumes and stronger tariffs.
Key negatives: Higher opex/interest costs.
Impact on financials: FY19/20E EPS revised 5/+7% to factor higher tariffs. TP stays at Rs230/sh, with lower investment value (GGL) offsetting EPS increase.
Valuations & View
The 3% underperformance to the Sensex of GSPL Stock (last 6M) provides a good opportunity to enter the stock, given the stellar performance in FY18 and improved operational prospects for FY19-20E. We see FY19E transmission volumes being boosted by the push back of RIL’s Petcoke gasification project to end of Q4FY19E, torrent power’s offtake of 1.5mmscmd, Ramp up of Essar Steel’s offtake to 1.5-2mmscmd and the persistent power demand over H1FY19. Despite the estimated 5-6 mmscmd reduction from RIL in FY20E therefore, we still see average volumes at ~36 mmscmd for FY19E and 37 mmscmd for FY20E, with upside risk from higher demand via GSPC Mundra terminal (commissioning estimated in Q3FY19) and commissioning of specific sections of the cross country pipelines over FY20E. With the long pending tariff order now coming through and visibility on volume growth, EPS CAGR for FY18-20E stands at 19%. Valuations of <11x FY20E EPS are attractive. Reiterate Outperformer.
Gujarat State Petronet Limited (GSPL) is a natural gas infrastructure and transmission company engaged in gas transportation business. The Company is engaged in transmission of natural gas through pipelines on an open access basis from supply points to demand centers. It also generates electricity through windmills. Its segments include Gas Transportation and Windmill. It develops energy transportation infrastructure and connects natural gas supply sources, including liquefied natural gas (LNG) terminals to various markets. It has set up a 52.5 megawatt (MW) Wind Power Project at Maliya Miyana (District-Rajkot), Gorsar, and Adodar (District-Porbandar). Its subsidiaries include GSPL India Gasnet Limited, which is engaged in development of Mehsana-Bhatinda and Bhatinda-Jammu-Srinagar pipeline projects, and GSPL India Transco Limited, which is engaged in the development of Mallavaram-Bhopal-Bhilwara-Vijaipur Pipeline Project. It serves various industries, such as power and fertilizer.
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