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Recommendations India

Gujarat State Petronet 3QFY2014 performance highlights and results update

February 7, 2014, Friday, 19:02 GMT | 14:02 EST | 00:32 IST | 03:02 SGT
Contributed by Angel Broking

Gujarat State Petronet (GSPL)’s 3QFY2014 volumes continued to decline although the realizations increased yoy. We recommend an Accumulate rating on the stock.
Top-line declines 7.9% yoy: GSPL’s top-line declined 7.9% yoy to Rs.245cr, mainly due to decrease in transmission volumes which although were partially offset by increase in realizations. The transmission volumes decreased by 26.6% yoy to 20.2mmscmd. The realizations however increased by 23.8% yoy to Rs.1.29/scm.
Higher interest costs and lower other income dents PAT: The company’s EBIDTA declined by 13.6% yoy to Rs.207cr in-line with a decline in the top-line. The interest costs rose 12.2% yoy to Rs.35cr and the other income declined 20.4% yoy to Rs.14cr. The tax rate also increased to 37.3% in 3QFY2014 compared to 33.0% in 3QFY2013 and hence the PAT decreased by 26.6% yoy to Rs.87cr.
Outlook and valuation: We believe GSPL is a leveraged play on increasing gas demand in Gujarat (the country’s hydrocarbon capital) from gas-based power plants and rising spot prices. We remain concerned due to declining gas production from the KG-D6 block and expect a decline in volume for GSPL during FY2014. Nevertheless, we expect volumes to increase modestly in FY2015. Moreover, valuations are undemanding for a utility company at 0.9x FY2015E P/BV. Hence, we recommend an Accumulate rating on the stock, valuing it at 8.5x FY2015 P/E to derive a target price of Rs.64.