Shares of Gujarat State Petronet Ltd (GSPL) were locked in a 20% lower circuit at Rs 302.30 on the BSE on Monday morning after the Petroleum and Natural Gas Regulatory Board (PNGRB) announced a 47% cut in tariffs for the company’s HP Pipeline network.
The board in its order, reduced the tariff to Rs 18.1 per mmbtu (metric million british thermal unit) from Rs 34.0 per mmbtu earlier. The new tariff will be applicable from May 1. The company had requested for an upward tariff revision to Rs 50.77 per mmbtu.
The Board has further attributed the cut in tariff to higher volume assumption and economic life extension of the pipeline. PNGRB’s tariff order determines the prices that a company can charge for transporting natural gas through its pipeline networks.
“The tariff of GSPL HP would be reviewed in the next financial year if there is a considerable variation in actual volume flows (in line with GSPL’s submission of 26 mmscmd (million metric standard cubic meters per day) as compared to the expected volume i.e. 31.67 mmscmd considered by the Board in this Tariff Order,” the regulatory board said in its order.
The difference in the views of the two entities comes from the difference in assumptions of three key factors – capex (reduced by Rs 13.7/mmbtu), opex (reduced by Rs 8.7/mmbtu), and volumes (reduced by Rs 11/mmbtu).
“This is just an adjustment of tariffs and not a cut,” PNGRB member AK Tiwari told a TV channel on Monday. He further said that the regulator had undertaken public consultations before issuing the final order.
GSPL can come up with an appeal if there are concerns and there is no question of renegotiations with GSPL on the volume front, Tiwari said, adding that there will be revisions in tariffs for GAIL as well.
A cut in tariff could lead to lower prices of natural gas for consumers and industries. However, for GSPL, it could lead to a decline in its Earnings Per Share by 30-40% in FY25, analysts say.
Nomura has cut GSPL’s FY25 and FY26 EBITDA estimates by 37% and 42% respectively. The brokerage firm also cut the company’s Earning Per Share estimates by 34% for FY25 and 40% for FY26. It also downgraded the stock to “reduce” with a lowered price target of Rs 320 from Rs 440 earlier.
Citi also cut its price target on the stock to Rs 295 from Rs 330 while maintaining its “sell” rating on GSPL. Emkay Global too reduced the stock’s rating to “reduce” from “buy” and lowered the price target to Rs 370 per share.