Fuel switching on account of favourable naphtha economics led to a significant drop in spot volumes for Gujarat State Petronet Limited (GSPL) during Q3FY09.
With prices now favouring LNG usage again, we expect the company’s volumes to normalise by Q4FY09E.
Petroleum and Natural Gas Regulatory Board (PNBRB) has notified the draft guidelines governing tariffs of trunk pipeline.
Though the company is in the process of submitting its revised tariffs for its existing pipelines, we do not foresee adverse impact of these guidelines on its profitability as its current RoCE is at reasonable levels of ~8%.
Our discussion with the management revealed that GSPL would not have to incur the 30% PBT contribution for FY09E (Rs644 million) as the project under its ambit has not meaningfully progressed. Factoring this, our FY09E EPS has increased from Rs1.5 to Rs2.1
GSPL’s volume growth during Q3FY09 (-30% y-o-y; -20% q-o-q) was subdued on account of lower off-take of spot LNG.
Strong net profit growth of 10% y-o-y for the quarter was driven by robust realizations (51% y-o-y; 24% q-o-q). This, we reckon, was a function of fixed capacity charges (take-or-pay) being triggered on some of the contracts.
We maintain our BUY recommendation on Gujarat State Petronet (GSPL) albeit with a reduced target price of Rs45 (v/s Rs64 earlier).
Our revised target is primarily based on the 30% PBT contribution to the Gujarat Socio Economic Development Society (GSEDS) fund to perpetuity, starting FY10E. Our lower target price also reflects the slow volume ramp-up from the RIL contract.