Gujarat State Petronet Ltd. INR 135

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1 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 India Equity Institutional Research Oil & Gas RESULT UPDATE Gujarat State Petronet Ltd. INR 135 Growth in volumes to propel earnings Accumulate Gujarat State Petronet Ltd. reported revenue of INR mn down 1.9% QoQ and up 2.0% Y-o-Y due to lower transmission volume. EBITDA was also down 6.7% QoQ at INR 2092 mn due to higher operation and maintenance expenses. Profit stood at INR mn (boosted by higher other income) up 13.8% on QoQ and 39.1% on Y-o-Y basis. Transmission volumes stood at 23.1 mmscmd which was down 5.1% QoQ and up 0.7% YoY. Implied tariff was higher 0.9% on a QoQ and down 6.2% on a YoY basis to INR 1,080/mscm. Key Metrics Q3FY16 Q2FY16 Q3FY15 QoQ% YoY% Total Volume (mmscmd) (5.1) 0.7 Tariff (INR/mscm) (6.2) Key Highlights Marginal volume increase YoY: Transmission volumes decreased QoQ and increased YoY basis by 5.1% and 0.7% to 23.1 mmscmd. Marginal tariff decrease YoY: Tariff increased QoQ and decreased YoY basis by 0.9% and 6.2% to INR 1,080/mscm which decreased the revenues. Operating margins decrease: Operating margins decreased by 435 bps on a QoQ basis due to higher operating and maintenance expenses. Operating and maintenance expenses came in at INR 243 mn as compared to INR 121 mn in Q2FY16 Target Price (TP): INR 151 Potential Upside: 11.5% Market Data Shares outs (Mn) 563 EquityCap (INR Mn) 5632 Mkt Cap (INR Mn) Wk H/L (INR) 153/104 Volume Avg (3m K) 594 Face Value (INR) 10 Bloomberg Code GUJS IN Market Info: SENSEX NIFTY 7404 Share Price Performance 120 Net profit margins increased significantly: Net profit margins increased by 683 bps on a QoQ basis and 1,325 bps on a YoY basis. Net profit increased due higher other income. Other income came in at INR 282 mn as compared to INR 120 mn in Q2FY16 Mundra terminal can increase volumes significantly: With the commissioning of mundra terminal (5 mnte) by FY18, we expect GSPL volumes to rise significantly given that 100% of the imports would be transported on GSPL pipelines. Even if Mundra terminal runs at 50% capacity utilization it could add up to ~9.3 mmscmd to GSPL current volumes Sensex GSPL Valuation: We remain positive on the stock considering the following trigger points. 1- ONGC to enhance domestic production by 10 15mmscmd over 1 3 years. 2- CBM production is poised to grow by 6 8mmscmd over 2 3 years. 3- Commissioning of Mundra terminal by FY18. We model transmission tariff at INR 1215, 1230 and 1267 mscm and volumes at 25.8, 27.5 and 29.3 mmscmd for FY16/17/18. We assign ACCUMULATE rating on the stock with the target price of INR 151/share based on the mix of EV/EBITDA, P/E and DCF methodology. Currently Stock trades at 14.3x FY17E EPS of INR 9.5. Key Financials (INR mn) FY13 FY14 FY15 FY16E FY17E Net Sales EBITDA Share Holding pattern (%) Particulars Dec15 Sep15 Jun15 Promoters FIIs DIIs Others Total Source: BSE Analyst Vaibhav Chowdhry vaibhav.chowdhry@krchoksey.com PAT EPS OPM (%) 91.4% 88.4% 87.1% 86.2% 85.2% NPM (%) 45.8% 39.9% 38.7% 46.1% 43.9% KRChoksey Research is also available on Bloomberg KRCS<GO>, ThomsonReuters, Factset and Capital IQ February 05, 2016

2 Q3FY16 - Result Analysis Particulars (INR mn) Q3FY16 Q2FY16 Q3FY15 QoQ% YoY% Total Revenue (1.9) 2.0 Employee benefits expense (21.3) (36.0) Operation and Maintenance expenses Other expenses EBITDA (6.7) 2.9 Depreciation (1.3) EBIT (8.8) 4.2 Other income Interest paid (13.5) (36.0) Pre-tax profit Tax (current + deferred) (19.4) (5.2) Net profit EPS OPM 84.3% 88.7% 83.6% -435bps 71bps NPM 49.8% 42.9% 36.5% 683.8bps 1,325bps Exhibit 1: Volume and Tariff details Exhibit 2: EBITDA margin to remain strong 2 KRChoksey-Institutional Research

3 Planned 3 new pipelines Company Pipeline Distance (Kms) Capacity (mmscmd) Capex (INR Crore) GSPL India Gasnet Ltd. (GIGL) Mehsana-Bhatinda 1, ,500 Bhatinda-Srinagar ,200 GSPL India transco Ltd. (GITL) Mallavaram-Bhilwara ,500 Profit & Loss Statement Total Revenue Employee benefits expense Operation and Maintenance expenses Other expenses EBITDA Depreciation EBIT Other income Interest paid Pre-tax profit Tax (current + deferred) Net profit EPS Balance sheet Share capital Reserves & surplus Shareholders' funds Minority Interest Non-current liabilities Long-term borrowings Other non-current liabilities Current liabilities Other current liabilities Total Liabilities Non-current assets Fixed assets (Net block) Non-current Investments Long-term loans and advances Other non current assets Current assets Cash & current investment Other current assets Total Assets KRChoksey-Institutional Research

4 Cash Flow Statement Profit before tax Depreciation Change in working capital (1600) (870) (700) 200 (100) Total tax paid Others Cash flow from operating activities Capital expenditure (3820) (2400) (3400) (1880) (2550) Cash flow from investing activities (3820) (2400) (3600) (1900) (2600) Free cash flow Cash flow from financing activities (100) (4100) (1250) (2480) (1570) Net change in cash and cash equivalents Key Ratios Particulars FY13 FY14 FY15 FY16E FY17E Adjusted EPS (INR) EBITDA margin 91% 88% 87% 86% 85% EBIT margin 76% 71% 68% 68% 68% RoCE 16.6% 13.4% 12.6% 12.3% 12.9% Total debt/equity (x) Net debt/equity (x) Asset turnover (x) Return on equity 17.7% 12.4% 10.9% 12.5% 12.4% Price/Book EV/EBITDA KRChoksey-Institutional Research

5 GSPL Ltd Date CMP Target Recommendation 05-Feb ACCUMULATE 09-Nov ACCUMULATE 08-Aug ACCUMULATE 23-May Under Review Rating Legend Our Rating Upside Buy More than 15% Accumulate 5% - 15% Hold 0 5% Reduce -5% 0 Sell Less than -5% ANALYST CERTIFICATION: I Vaibhav Chowdhry (B.Com, MBA), research analyst, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & Conditions and other disclosures: KRChoksey Shares and Securities Pvt. Ltd (hereinafter referred to as KRCSSPL) is a registered member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited and MCX Stock Exchange Limited. 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