Gujarat State Petronet (GSPL) reported strong Q2FY18 EBITDA of Rs 300 crore, up 26% y-o-y and 8% q-o-q (22% ahead).
Gujarat State Petronet (GSPL) reported strong Q2FY18 EBITDA of Rs 300 crore, up 26% y-o-y and 8% q-o-q (22% ahead). The beat was led by 17% q-o-q volume surge to 32 mmscmd (21% ahead), while tariff at Rs 1.1/scm came in line. Volume growth extended its strong run of Q1FY18 on healthy off-take across customer segments. Management indicated healthy momentum with QTD volumes at ~30mmscmd. We expect robust near term prospects with higher off-take by RIL (~5mmscmd over 6 months till December 2017). A favourable tariff order is expected by FY19 – we estimate 12% tariff hike in FY19. Factoring in 11% higher volumes, we raise FY19E EPS by 13%. Maintain ‘buy’ with a revised DCF-based TP of Rs 254 (Rs 213 earlier) factoring in higher volumes in medium term.
Volumes rose 28% y-o-y and 17% q-o-q extending the robust Q1 trail boosted by stronger gas demand from RIL, despite cracker shutdowns (~3mmscmd), in addition to the healthy off-take across segments. Consequently, EBITDA came 22% ahead. Management guided for further 20% ramp up in RIL’s demand as crackers resume along with healthy city gas volumes. We believe GSPL will benefit from PLNG’s recent expansion (parent GSPC has already booked 2.25mmt) and commissioning of Mundra LNG terminal in 2018. Management guided pipelines connecting Mundra will be commissioned in 6-8 months. PNGRB is currently considering GSPL’s demand of 124% hike in tariff, which however seems excessive.
We expect the revised tariff order shortly with new members inducted into PNGRB. Our sensitivity analysis indicates that potential tariff hike by 20%/40%/50% will bolster GSPL’s FY19E earnings by 10%/34%/46%. Management indicated GSPL can clock ~30mmscmd volumes even with RIL’s reduced off-take following commissioning of its petcoke gasification unit. We maintain that demand from city gas and higher off-take by OPAL will likely offset any volume loss. We forecast 12% EPS growth in FY19. At CMP, the stock trades at 16x FY19E PER. On robust volumes in medium term and expected higher tariffs, we reiterate ‘BUY/SO’.