Buy rating to Gujarat State Petro shares, target price Rs 75: Nomura

Updated: Jan 11 2014, 23:23pm hrs
We retain buy rating and DCF-based target price of R75 per share on Gujarat State Petronet (GSPL). We use DCF methodology to value the stock, assuming a WACC of 11.7% and a terminal growth of 2.5%. Our DCF model covers cash flows from FY15f to FY25f.

In a positive development for GSPL, the appellate tribunal for electricity (APTEL) has ruled tariff for GSPLs network should be applicable from the date of network authorisation (July 27, 2012) and not the date of tariff regulation (November 20, 2008). The case was filed by Reliance Industries, which opposed the tariff order implementation from November 2008. APTEL had ruled that the prevailing contractual rate would apply for the period prior to network authorisation.

GSPL was already a net gainer of the tariff-setting exercise. But even after the regulator gave tariff order effective from November 2008, GSPL chose to implement the order only from the date of authorisation. The average tariff for GSPL had increased by 11-12%, and it had booked a gain of R100 crore for the nine-month period from July 2012 to March 2013.

The APTEL judgment is supportive of GSPLs view, and Petroleum and Natural Gas Regulatory Board (PNGRB) will now need to rework the tariff from the network authorisation date. In its submission to PNGRB, apart from the tariff start date of November 2008, GSPL had also given tariff demand with a starting date of April 2012. GSPL had estimated a 25-35% higher tariff for its high/low pressure pipeline, if the start date were moved to 2012.

For most of tariff orders, PNGRB has been insisting on retroactive tariff implementation from November 2008, even as actual tariff orders had been issued much later. The case against such orders gets even stronger after this judgment, in our view.

- Nomura