Gujarat State Petronet India Equity Research Oil & Gas February 4, 2016 Result Update Emkay Your success is our success Higher other income drive the quarter CMP Target Price Rs136 Rs163 ( ) Rating Upside BUY ( ) 20.2 % Operationally in-line result, however beat came at PAT level on account of higher other income, which is attributable to ~Rs0.17bn of dividend income from Gujarat Gas. Revenue and EBITDA came in line with our est. Revenue came in at Rs2.5bn (our est. Rs2.5bn) and EBITDA came in at Rs2.1bn (our est. Rs2.1bn) Transmission tariff remained flat sequentially at Rs1.07/scm. However, transmission volume increased by 3.1% qoq from 24.3mmscmd to 25.1mmscmd Other expenditure increased from Rs0.17bn to Rs0.3bn due to 1) and fluctuation in SUG cost and 2) in Q2FY16 Company has reported lower other expenditure which was adjusted in Q3FY16. Interest cost declined during the quarter by 13.5% to Rs0.2bn on repayment of debt We expect multiple triggers for GSPL, i.e. 1) sharp correction in spot LNG price - Currently ~$5/mmbtu, 2) upward revision in tariff and 3) expected improvement in volumes from stranded power plants Essar and OPAL. We maintain our Buy reco. with target price of Rs163. Stock currently trades at 11.3x FY17E EPS and 1.6x FY17 P/B Lower SPOT LNG prices to drive volumes, going ahead - Spot LNG price fell to ~$5/mmbtu. Lower LNG price compare to liquid fuels like FO, Naphtha would result in increase in demand from power plants and other industries. Also, we expect improvement in offtake from Essar and OPAL. Currently, OPAL is off taking 0.4mmscmd of gas which is expected to touch its peak of 1mmscmd by FY17end. Moreover, Petronet s Dahej expansion (5mnt) and Mundra LNG terminal (5mnt) is likely to commence operations from April 2017, thereby offering additional volumes to GSPL, which will offset the volume loss of Reliance. Currently, Reliance offtakes ~6mmscmd. 3 new pipelines provide long term triggers - Company has started engaging some volumes with few consumers for its 3 new pipelines as all the major initial clearances have been duly completed. For the new pipelines, company expects volumes from Adani s Mundra terminal and PLNG s Dahej expansion. To avoid stress on balance sheet in terms of higher debt and interest cost, company will roll out capex in a phased manner. GSPL will provide the detailed strategy of these 3 new pipelines in the ensuing quarters. PNGRB has finally notified the Draft Amendment on tariff calculation for Transmission companies. Calculation method follows - Volume should be the divisor to find out unit natural gas pipeline tariff. For the first 5 years normative volume can be derived as under. Normative volume = Applicable percentage utilization for the year (refer below table) * 75% of capacity of natural gas pipeline as determined under PNGRB regulations, 2010. Financial Snapshot (Standalone) (Rs mn) FY14 FY15 FY16E FY17E FY18E Net Sales 10,507 10,646 11,446 13,551 14,692 EBITDA 9,289 9,275 10,101 12,064 13,066 EBITDA Margin (%) 88.4 87.1 88.2 89.0 88.9 APAT 4,191 4,526 5,161 6,736 7,566 EPS (Rs) 7.4 8.0 9.2 12.0 13.4 EPS (% chg) (22.1) 7.9 14.0 30.5 12.3 ROE (%) 13.4 13.1 13.3 15.2 14.9 P/E (x) 18.2 16.9 14.8 11.3 10.1 EV/EBITDA (x) 8.2 8.0 6.6 5.0 4.1 P/BV (x) 2.3 2.1 1.8 1.6 1.4 Change in Estimates EPS Chg FY16E/FY17E (%) NA Target Price change (%) NA Previous Reco Buy Emkay vs Consensus EPS Estimates FY16E FY17E Emkay 9.2 12.0 Consensus 8.5 10.4 Mean Consensus TP Rs 151 Stock Details Bloomberg Code GUJS IN Face Value (Rs) 10 Shares outstanding (mn) 563 52 Week H/L 154 / 101 M Cap (Rs bn/usd bn) 76 / 1.12 Daily Avg Volume (nos.) 3,66,900 Daily Avg Turnover (US$ mn) 0.7 Shareholding Pattern Dec '15 Promoters 37.7% FIIs 15.4% DIIs 19.7% Public and Others 27.2% Price Performance (%) 1M 3M 6M 12M Absolute (5) 8 6 16 Rel. to Nifty 3 18 23 39 Relative price chart 150 Rs % 50 140 36 130 22 120 8 110-6 100-20 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Gujarat State Petronet (LHS) Rel to Nifty (RHS) Source: Bloomberg Dhaval Joshi dhaval.joshi@emkayglobal.com +91 22 66121282 Nilesh Ghuge nilesh.ghuge@emkayglobal.com +91 22 66121384 Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. Emkay Global Financial Services Ltd.
Exhibit 1: Quarterly Financials Rs mn Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 YoY (%) QoQ (%) 9MFY16 9MFY15 YoY (%) Revenue 2,431 2,387 2,591 2,528 2,481 2.0-1.9 7,600 8,259-8.0 Expenditure 398 389 320 286 389-2.3 35.8 995 982 1.3 as % of sales 16.4 16.3 12.4 11.3 15.7 13.1 11.9 Employee Cost 139 70 74 113 89-35.9-21.3 276 285-3.3 as % of sales 5.7 3.0 2.9 4.5 3.6 3.6 3.5 Other expenditure 259 319 246 173 300 15.7 73.2 719 697 3.2 as % of sales 10.7 13.3 9.5 6.8 12.1 9.5 8.4 EBITDA 2,033 1,998 2,271 2,242 2,092 2.9-6.7 6,605 7,277-9.2 Depreciation 478 601 434 464 472-1.3 1.6 1,370 1,413-3.0 EBIT 1,556 1,397 1,837 1,778 1,621 4.2-8.8 5,235 5,864-10.7 Other Income 131 115 108 120 282 115.2 134.5 510 405 26.1 Interest 288 262 207 213 184-36.1-13.5 605 916-34.0 PBT 1,398 1,251 1,738 1,685 1,718 22.9 2.0 5,141 5,353-4.0 Total Tax 510 580 610 600 483-5.3-19.4 1,693 1,920-11.8 Adjusted PAT 888 671 1,128 1,085 1,235 39.1 13.8 3,448 3,433 0.4 APAT after MI 888 671 1,128 1,085 1,235 39.1 13.8 3,448 3,433 0.4 Reported PAT 888 671 1,128 1,085 1,235 39.1 13.8 3,448 3,433 0.4 Reported EPS 1.6 1.2 2.0 1.9291 2.19 38.9 13.8 6.1 6.1 0.5 Margins (%) (bps) (bps) (bps) EBIDTA 83.6 83.7 87.6 88.7 84.3 0.8-4.9 86.9 88.1-119.9 EBIT 64.0 58.5 70.9 70.3 65.3 2.1-7.1 68.9 71.0-212.0 EBT 57.5 52.4 67.0 66.7 69.3 20.4 3.9 67.6 64.8 283.1 PAT 36.5 28.1 43.5 42.9 49.8 36.3 15.9 45.4 41.6 380.0 Effective Tax rate 36.5 46.4 35.1 35.6 28.1-22.9-20.9 32.9 35.9-293.4 Exhibit 2: Applicable % utilization as per PNGRB Year of natural gas pipeline operations (%) utilization First 60% Second 70% Third 80% Fourth 90% Fifth 100% Source: PNGRB The divisor for 6th and subsequent years is as under:- Firmed up contract capacity + Booked common carrier capacity OR 75% of the capacity as determined under PNGRB regulations, 2010, whichever is HIGHER. The adjustment on account of variation in the calculated tariff shall be made in the DCF calculations and derived tariff will be recovered from the customers on prospective basis. Note: As per our understanding and confirmation from the management, we expect upward revision in transmission tariff for GSPL and GAIL. For GSPL, tariff calculation is applicable from 6th year onwards. However, the final notified tariff would likely to come in the a quarter. Every 10% increase in transmission tariff leads to a ~14% increase in GSPL s EPS for FY17. Emkay Research February 4, 2016 2
$/mmbtu Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16-11.0 mmscmd -4.4-5.3 2.7-1.4 % Change Tariff/scm -6.3-5.4-5.1 4.1 1.3 0.6-1.5 0.4 0.5 3.1 % change 7.0 8.9 7.0 Gujarat State Petronet (GUJS IN) Exhibit 3: Physical Performance Particulars Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Volumes (mmscmd) 20.2 20.8 22.2 24.2 22.9 22.6 24.2 24.3 25.1 QoQ % Change -4.4 2.7 7.0 8.9-5.3-1.4 7.0 0.5 3.1 YoY % Change -25.8-5.2 0.4 14.4 13.3 8.9 8.8 0.4 9.3 Transmission Tariff (Rs./scm) 1.29 1.21 1.08 1.12 1.14 1.14 1.13 1.07 1.07 QoQ % Change -5.4-6.3-11.0 4.1 1.3 0.6-1.5-5.1 0.4 YoY % Change 24.3-26.6-23.6-17.9-12.0-5.5 4.5-4.7-5.5 Exhibit 4: Transmission volume trend 25 20 15 10 5 20.2 20.8 22.2 24.2 22.9 22.6 24.2 24.3 25.1 20 10 0-10 Exhibit 5: Transmission tariff trend 1.50 1.20 0.90 0.60 0.30 1.29 1.21 1.08 1.12 1.14 1.14 1.13 1.07 1.07 10 0-10 0-20 0.00-20 Volumes (mmscmd) QoQ % Change Transmission Tariff (Rs./scm) QoQ % Change Exhibit 6: Comparison of Spot LNG price with liquid fuels 12.0 8.0 4.0 9.6 9.6 9.0 9.0 8.9 7.9 7.9 7.6 6.9 6.8 7.2 7.4 6.8 7.4 6.9 6.8 6.4 6.8 4.3 4.5 5.0 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Naphta Fuel oil SPOT LNG Emkay Research February 4, 2016 3
Key Financials (Standalone) Income Statement Y/E Mar (Rs mn) FY14 FY15 FY16E FY17E FY18E Net Sales 10,507 10,646 11,446 13,551 14,692 Expenditure 1,218 1,371 1,345 1,487 1,626 EBITDA 9,289 9,275 10,101 12,064 13,066 Depreciation 1,839 1,892 1,981 2,000 2,042 EBIT 7,450 7,382 8,120 10,064 11,024 Other Income 552 520 649 778 830 Interest expenses 1,419 1,178 948 713 478 PBT 6,583 6,724 7,821 10,130 11,377 Tax 2,391 2,198 2,660 3,394 3,811 Extraordinary Items 0 0 0 0 0 Minority Int./Income from Assoc. 0 0 0 0 0 Reported Net Income 4,191 4,526 5,161 6,736 7,566 Adjusted PAT 4,191 4,526 5,161 6,736 7,566 Balance Sheet Y/E Mar (Rs mn) FY14 FY15 FY16E FY17E FY18E Equity share capital 5,627 5,630 5,630 5,630 5,630 Reserves & surplus 27,321 30,601 35,748 41,830 48,742 Net worth 32,948 36,231 41,378 47,460 54,371 Minority Interest 0 0 0 0 0 Loan Funds 10,365 8,879 6,920 4,961 3,002 Net deferred tax liability 4,202 4,504 4,504 4,504 4,504 Total Liabilities 47,516 49,613 52,802 56,925 61,877 Net block 31,593 30,654 28,673 26,673 25,632 Investment 5,850 6,487 6,487 6,487 6,487 Current Assets 10,024 10,498 16,468 22,137 27,860 Cash & bank balance 4,992 4,352 9,930 14,602 19,773 Other Current Assets 153 241 259 307 333 Current liabilities & Provision 6,513 5,791 7,592 8,138 8,367 Net current assets 3,510 4,707 8,876 13,999 19,493 Misc. exp 0 0 0 0 0 Total Assets 47,516 49,613 52,802 56,925 61,877 Cash Flow Y/E Mar (Rs mn) FY14 FY15 FY16E FY17E FY18E PBT (Ex-Other income) (NI+Dep) 6,583 6,603 7,821 10,130 11,377 Other Non-Cash items 1,432 (460) (649) (778) (830) Chg in working cap (869) (871) 1,409 (451) (323) Operating Cashflow 6,451 6,147 8,850 8,219 8,931 Capital expenditure (2,401) (2,157) (1,000) (1,000) (1,500) Free Cash Flow 4,050 3,991 7,850 7,219 7,431 Investments (4,109) (386) 0 0 0 Other Investing Cash Flow 52 1,025 0 0 0 Investing Cashflow (6,459) (1,518) (1,000) (1,000) (1,500) Equity Capital Raised 0 17 0 0 0 Loans Taken / (Repaid) (1,808) (2,713) (1,959) (1,959) (1,959) Dividend paid (incl tax) (658) (658) (654) (654) (654) Other Financing Cash Flow 0 0 649 778 830 Financing Cashflow (4,067) (4,743) (2,912) (2,548) (2,261) Net chg in cash (4,076) (114) 4,938 4,672 5,171 Opening cash position 8,531 4,992 4,352 9,930 14,602 Closing cash position 4,992 4,352 9,930 14,602 19,773 Emkay Research February 4, 2016 4
Key Ratios Profitability (%) FY14 FY15 FY16E FY17E FY18E EBITDA Margin 88.4 87.1 88.2 89.0 88.9 EBIT Margin 70.9 69.3 70.9 74.3 75.0 Effective Tax Rate 36.3 32.7 34.0 33.5 33.5 Net Margin 39.9 39.7 45.1 49.7 51.5 ROCE 17.0 16.3 17.1 19.8 20.0 ROE 13.4 12.2 13.3 15.2 14.9 RoIC 26.1 25.9 29.9 40.4 46.1 Per Share Data (Rs) FY14 FY15 FY16E FY17E FY18E EPS 7.4 7.5 9.2 12.0 13.4 CEPS 10.7 10.9 12.7 15.5 17.1 BVPS 58.5 64.4 73.5 84.3 96.6 DPS 1.0 1.2 1.0 1.0 1.0 Valuations (x) FY14 FY15 FY16E FY17E FY18E PER 18.2 18.1 14.8 11.3 10.1 P/CEPS 12.7 12.5 10.7 8.8 8.0 P/BV 2.3 2.1 1.9 1.6 1.4 EV / Sales 7.2 7.0 5.8 4.4 3.6 EV / EBITDA 8.2 8.0 6.6 5.0 4.1 Dividend Yield (%) 0.7 0.9 0.7 0.7 0.7 Gearing Ratio (x) FY14 FY15 FY16E FY17E FY18E Net Debt/ Equity 0.0 (0.1) (0.2) (0.3) (0.4) Net Debt/EBIDTA (0.1) (0.2) (0.9) (1.3) (1.8) Working Cap Cycle (days) (90.8) (77.8) (135.1) (121.5) (114.1) Growth (%) FY14 FY15 FY16E FY17E FY18E Revenue (10.4) 1.3 7.5 18.4 8.4 EBITDA (13.4) (0.1) 8.9 19.4 8.3 EBIT (15.9) (0.9) 10.0 23.9 9.5 PAT (22.1) 8.0 14.0 30.5 12.3 Quarterly (Rs mn) Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Revenue 2,431 2,387 2,591 2,528 2,481 EBITDA 2,033 1,998 2,271 2,242 2,092 EBITDA Margin (%) 83.6 83.7 87.6 88.7 84.3 PAT 888 671 1,128 1,085 1,235 EPS (Rs) 1.6 1.2 2.0 1.9 2.2 Shareholding Pattern (%) Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Promoters 37.7 37.7 37.7 37.7 37.7 FIIs 8.7 10.4 11.3 13.8 15.4 DIIs 23.4 22.8 22.5 20.6 19.7 Public and Others 30.2 29.1 28.6 28.0 27.2 Emkay Research February 4, 2016 5
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