MOSL: GUJARAT STATE PETRONET (Neutral)-Volumes strong, but downside risk remains

Gujarat State Petronet: Volumes strong, but downside risk remains; Reiterate Neutral

(GUJS IN, Mkt Cap USD1.7b, CMP INR193, TP INR191, 1% Downside, Neutral)

We recently met GUJS’ management. Our key takeaways:

Volumes strong, but expected to remain flat during FY18-20

• Since 1QFY18, GUJS has been reporting steady growth in gas transmission volumes, led primarily by higher consumption in refinery/petrochem, power and CGD sectors. Going forward also, the company expects demand from the power sector to be strong for about six months in a year.
• The company suggests that current transmission volumes stand at ~36mmscmd, up 7.5% QoQ. It has further guided that as summer power demand catches up, transmission volumes could increase to 40mmscmd.
• However, as and when RIL commissions all its gasifiers, there could be a loss of ~5mmscmd in transmission volumes.
• As a result of the decline due to lower offtake from RIL, we expect GUJS' transmission volumes to remain flat during FY18-20.

 Medium-term triggers

• The commissioning of GSPC/Adani's 5mmtpa Mundra LNG terminal and the completion of Barmer Gas Pipeline could boost GUJS' gas transmission volumes. The company has not yet come out with the tender to augment capacity of its existing ~170km network connecting Mundra LNG terminal.
• Work on sections of Mehsana-Bhatinda and Mallavaram-Bhilwara trunk pipelines is also continuing. Tenders for connecting Bhatinda and Panipat refineries are expected to be awarded soon, which could increase transmission volumes in the medium to longer term. Both refineries together offer a potential of ~6mmscmd demand.