GSPL’s net income of Rs 1.21 billion was 4.5% above our estimate led by sharply lower operating costs and depreciation. Our expectation of upward revision in regulated tariffs in the near term and reasonable valuations, adjusted for value of investments, keep us positive on the stock. We retain add on GSPL with a revised DCF-based TP of Rs 170 (Rs 150 previously). Weaker-than-expected volume and investments in cross-country pipelines are key risks to our thesis.
GSPL reported 11% sequential increase in revenues to Rs 2.58 billion, driven by 3% q-o-q growth in volumes to 25.1 mcm/d and 4.3% q-o-q increase in blended transmission tariffs to Rs 1.07/scm. EBITDA increased by 14% to R2.33 billion, 2% ahead of our estimate, led by moderate reduction in operating costs. Net income increased 22% q-o-q to Rs 1.21 billion, further boosted by lower depreciation and higher other income.
We expect gas transmission volumes to remain steady at 25-26.5 mcm/d in FY2017-19, as higher LNG availability amid robust demand environment will offset lower LNG off-take by RIL’s refineries. We model gas pipeline tariffs at Rs 1.08/scm in FY17 and Rs 1.32/scm in FY2018-22, factoring in upward revision in regulated tariffs. In the long term, we assume lower regulated tariffs of Rs 1.28/scm as we believe that PNGRB will reduce tariffs to offset the benefit from likely higher volumes versus currently assumed divisors.