Gujarat State Petronet rating – Buy: Q4FY21 Ebitda was ahead of expectations

Debt reduction is a positive; plentiful gas supply is likely to drive volumes; TP up to Rs 342; ‘Buy’ maintained

We retain ‘BUY/SO’ with revised TP of Rs 342 (earlier: Rs 278) as we roll over valuations to FY23E and it currently trades at 3.0x PE (ex-Gujarat Gas).

Gujarat State Petronet’s (GSPL’s) Q4FY21 Ebitda of Rs 3.4 bn (-3% y-o-y, -13.6% q-o-q) surpassed our and consensus estimates led by 49% y-o-y dip in opex due to low compression cost as volumes dipped.

Key highlights: (i) Current volumes are ~35mmscmd, but June is likely to exit at ~40mmscmd. The shortfall in CGD/power volumes is being compensated by addition of ~4mmscmd Reliance volumes; (ii) the Anjar-Chotila pipeline should be commissioned by Dec 2021, which is likely to augment incremental ~5mmscmd volumes from CY22; (iii) net tariffs fell 13.7% y-o-y as low pressure pipelines due to lower volumes didn’t require compression. Robust Rs 50 bn FCF over FY21-23e and Rs 20 bn in FY21 will help GSPL turn debt free. Retain Buy.

Impressive CGD volumes partly offset weak refining demand in Q4: While GSPL’s volumes declined to 33.8mmscmd (-8% y-o-y, -14% q-o-q), CGD volumes were at an all-time high—up 23% y-o-y. Refining consumer volumes plunged 31% y-o-y and power by 17% as spot LNG prices surged by 163% y-o-y. Q1FY22 may see only a modest recovery to ~37-38mmscmd given Covid-led cutbacks and fairly high spot LNG prices of ~$10/mmbtu.

Plentiful gas supply to drive volumes: Domestic new gas is plentiful—Reliance’s 10mmscmd+ and Vedanta’s 4.2mmscmd+. In addition, capacity expansions are geared to offtake from new LNG terminals and support cross-country pipelines of its subsidiaries for expansion outside Gujarat. GSPL is the sole off-taker for Mundra LNG terminal’s ~9mmscmd volumes (incremental ~5mmscmd). GSPL enjoys the fastest growth amongst pipeline companies – 2x volumes over four-five years.

Outlook: Attractive–GSPL is the key beneficiary of additional LNG to be imported in India to bridge the demand-supply gap. Its net debt/equity plunged to 0.1x and OCF remains healthy at Rs 29 bn in FY21. We retain ‘BUY/SO’ with revised TP of Rs 342 (earlier: Rs 278) as we roll over valuations to FY23E and it currently trades at 3.0x PE (ex-Gujarat Gas).

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express Telegram Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.