Gujarat State Petronet (GSPL) delivered subdued Q2FY17 with EBITDA at R2,262 million (down 3% q-o-q, flat y-o-y), 3% below estimate. Earnings miss was on account of 5% lower than expected volumes at 24.6mmscmd, while tariff was in line at R1.1/scm. Sequential fall in volumes, despite PLNG’s Dahej terminal expansion, could be attributed to the temporary lower offtake from refining segment.
Management indicated that volumes have recovered in Q3FY17 as spot LNG prices have moderated after recovering in Q2. We expect GSPL’s volumes to benefit from PLNG’s recent expansion and 2017 commissioning of Mundra LNG terminal. A favourable tariff order is expected shortly, which will be effected from FY18.
We estimate 3%/5% volume growth in FY17/18 owing to higher demand from city gas on improving gas economics and higher off-take from incremental PLNG capacity, and expect 12% tariff hike in FY18.
Gas transmission volumes fell 2% q-o-q, up 1% y-o-y. In the absence of power pooling, tariffs rose 1% q-o-q and y-o-y, as non pooling tariffs are 2x pooling tariff. Other income jumped 2x to R287 million due to R94 million dividend income from Gujarat Gas. City gas volumes (30% of GSPL’s volumes) will cyclically revive as lower feedstock will drive higher industrial demand. Post GAIL’s tariff revision for 6 pipelines (10% blended tariff increase), we expect a favourable tariff order for GSPL as well, which will now be effected from FY18. On steady volumes and higher tariffs, we reiterate ‘BUY/SO’ with a DCF-based target price of R184.