IDFC Securities - Gujarat State Petronet (GSPL) Gujarat State Petronets Q4FY18 results (Upgrade to Outperformer) - Steady Quarter; ripe for a relook

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IDFC Securities

Gujarat State Petronet's Q4FY18 results (Upgrade to Outperformer) - Steady Quarter; ripe for a relook

Q4FY18 highlights

Reported EBITDA/PAT of Rs2.9bn/Rs1.6bn grew 45/24% yoy respectively, driven by continued strength in transmission volumes to 34.1 mmscmd (+48% yoy, IDFCe 34 mmscmd). The continued strength in RIL/Power sector offtake has driven the volume uptick. FY18 average volumes at 31.5 mmscmd up 26.5% yoy.
However numbers were below IDFCe EBITDA/PAT of Rs3bn/1.8bn, primarily due to higher interest cost (GGL stake buy) and higher opex (Higher SUG charges).
FY18 EBITDA/PAT of Rs11.7bn/6.7bn has grown 32/35% yoy. Reported tariff of ~Rs1.12/scm for the quarter and Rs1.13/scm for the year down 6/2% yoy, in line. EBITDA margins at 83% vs 85% in Q3FY18/ 82% in Q4FY17.

Key positives: Sharply higher volumes and steady tariffs.

Key negatives: Higher opex/interest costs.

Impact on financials: FY19/20E EPS revised +2/-5% for FY18/19E to factor higher volumes, offset by higher interest/depreciation. TP unchanged.

Valuations & View:

The 15% underperformance to the Sensex of GSPL Stock (last 3M) 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 H2FY19E, 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 H2 therefore, we still see average volumes at ~33 mmscmd for FY19E and 35 mmscmd for FY20E (31/32.5 earlier), with upside risk from higher demand via GSPC Mundra terminal (commissioning estimated in Q2FY19) and commissioning of specific sections of the cross country pipelines over FY20E. With our revised estimates pointing to a 10% CAGR in EPS over FY18-20E and RoE/ROCE of 14/15% by FY20e, we believe current valuations of 7.4x FY20E EPS / 5x EV/E (excluding Rs67/sh of GGL investment value @40% disc to CMP) are compelling. Upgrade to outperformer.

23/05/2018 7 EN

Underlying

Gujarat State Petronet

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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INE246F01010 National Stock Exchange of India India

Provider

IDFC Securities

IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.

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