8 November 2014
2QFY15 Results Update | Sector:
Oil & Gas
Gujarat State Petronet
BSE SENSEX
27,869
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
8,337
GUJS IN
562.8
54.9/0.9
104/54
6/21/-30
CMP: INR98
TP: INR93
Neutral
Gujarat State Petronet’s 2QFY15 reported net sales at INR3.5b included one-time
tariff write-back of INR0.9b. Adjusted revenues at INR2.6b (est. INR2.8b, (-6% YoY,
+13% QoQ), adj. EBITDA at INR2.3b (est INR2.5b; -7% YoY, +17% QoQ) were below
estimate due to lower than estimated adj. tariff at INR1,099/mscm (est.
INR1,175/mscm; -20% YoY, +2% QoQ). Adj. PAT stood at INR850m (v/s est INR1.1b;
-3% YoY, +31% QoQ).
Financials & Valuation (INR Billion)
Y/E Mar
Sales
EBITDA
Adj. PAT
Adj. EPS
(INR)
EPS Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
2015E 2016E 20117E
11.7
10.5
4.4
7.9
5.7
66
14.3
18.0
12.4
1.5
12.1
10.6
5.3
9.5
20.1
75
13.4
16.7
10.3
1.3
12.8
11.2
5.7
10.2
7.5
84
12.9
16.3
9.6
1.2
Volumes revive 21% from 3QFY14 low; zonal tariff order implemented
n
n
n
2QFY15 transmission volumes stood at 24.2mmscmd (v/s est. 24.5mmscmd; -20%
YoY, +2% QoQ).
Implied tariff in 2QFY15 stood at INR1,099/mscm (v/s INR1,365/mscm in 2QFY14
and INR1,077/mscm in 1QFY15) and we model INR1,200 in 2HFY15. Average tariff
increased QoQ after five consecutive quarters of tariff decline led by removal of
take-or-pay revenues.
GSPL implemented PNGRB’s zonal tariff order effective from July 27, 2012
resulting in prior period write-back of ~INR900m.
GSPL’s volume have declined by 17mmscmd in 3QFY14 to 20.2mmscmd from its
peak of 36.8mmscmd in 1QFY12 led by fall in domestic production and continued
high LNG prices impacting demand.
Now with low oil prices and incremental LNG exports from US, LNG prices are
expected to remain soft. Also government efforts to increase gas availability to
power sector through pooling would augur well. We model volumes at
26/27mmscmd in 2HFY15/FY16 v/s 24mmscmd in 2QFY15.
Benign spot LNG prices could improve volume availability to some extent
n
n
Valuation and view:
The stock trades at 10.3x FY16E EPS of INR9.5. Our SOTP-based
target price stands at INR93.
Neutral.
Harshad Borawake
(HarshadBorawake@MotilalOswal.com); +91 22 3982 5432
Investors are advised to refer through disclosures made at the end of the Research Report.

Gujarat State Petronet
Reported numbers not comparable due to zonal tariff implementation
n
n
PNGRB’s zonal tariff order was implemented by GSPL during the quarter. The
effective implementation date was July 27, 2012 which resulted in INR900m
one-time gain accounted in revenues. .
We model 2HFY15 tariff at INR1,200/mscm v/s INR1,099/mscm in 2QFY15.
Exhibit 1: Volumes improve QoQ to 24.5mmscmd
Revenue (INRm)
35.2
Volume (mmscmd)
32.8
31.1
31.1
28.6
27.3
22.2
22.1
21.2
20.2
20.8
22.2
24.5
2,706 2,711 2,706 2,557 2,612 2,615 3,525 2,843 2,658 2,404 2,262 2,179 2,447
2QFY12
4QFY12
2QFY13
4QFY13
2QFY14
4QFY14
2QFY15
Source: Company, MOSL
Exhibit 2: Revenues up 13% QoQ led by 9% QoQ volume growth
Volume (mmscmd)
Tariff (INR/mscm)
36.4
4QFY10
36.4
35.3
2QFY11
35.3
35.5
4QFY11
36.8
35.2
2QFY12
32.8
31.1
4QFY12
31.1
28.6
2QFY13
27.3
22.2
4QFY13
22.1
21.2
2QFY14
20.2
20.8
4QFY14
22.2
24.5
2QFY15
Source: Company, MOSL
Exhibit 3: Planned 3 new pipelines still delayed: GSPL can start GIGL pipeline earlier than
GITL
Valuation and view
n
n
n
Key events to watch: (1) Construction of three new trunk pipelines within set
timelines, (2) Volume ramp-up, and (3) Monetization of stake in GSPC Gas and
Sabarmati Gas.
We do not assign any value to the three new cross-country pipelines due to lack
of clarity on gas availability.
The stock trades at 10.3x FY16E EPS of INR9.5. Our SOTP-based target price
stands at INR93.
Neutral.
2
8 November 2014

Gujarat State Petronet
Story in charts
Exhibit 4:
GSPL’s volumes growth contingent to gas
production/LNG imports
Volume (mmscmd)
Tariff (INR/mscm)
Exhibit 5:
EBITDA Margin to remain strong at 88%...
EBITDA Margin (%)
94 93 92
91
87
84
87
88
89
88
74
FY06
FY08
FY10
FY12
FY14
FY16E
FY06
FY08
FY10
FY12
FY14
FY16E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 6:
ROE declined from 30% to 13.4% in 4 yrs…
RoE %
29.8
25.6
26.5
9.6 10.5 11.2
7.1
FY06
9.5 10.1
FY08
10.5
11.9
RoCE %
28.4
22.3
17.0 18.0 16.7
19.9
13.4 14.3 13.4
Exhibit 7:
.. Expect D/E ratio to decrease further…
Net Debt / Equity (x)
0.96
0.80
0.46
0.71
0.78 0.75
23.6 23.3
0.37
0.30 0.29 0.28
0.23
FY10
FY12
FY14
FY16E
FY06
FY08
FY10
FY12
FY14
FY16E
Source: Company, MOSL
*New pipeline capex not factored
Source: Company, MOSL
Exhibit 8:
Total capex of >INR122b for 3 new trunk pipelines
Capacity (mmscmd)
Capex
(INR b)
65
42 45
52
31
12
Mehs-Bhat
Bhat-Sringr
Mallav-Bhil
Exhibit 9:
GSPL 1 yr forward P/E chart: currently trading at 9.8x
Source: Company, MOSL
Source: Company, MOSL
8 November 2014
3

Gujarat State Petronet
Gujarat State Petronet: an investment profile
Company description
GSPL is the 2 largest gas transmission company in India
with 2,239Kms of high pressure gas pipeline network
and 31mmscmd of firm GTAs for gas transmission to
various industries and CGD networks in the state of
Gujarat. GSPL’s parent, GSPC owns 37.7% stake in GSPL
and has interest in both upstream and downstream
businesses. GSPL as the mid-stream company of the
group is the vehicle for transmission of additional gas
production by GSPC. In FY12 GSPL promoted 2 SPVs
(GIGL and GITL) for implementing 3 cross country gas
pipelines.
nd
Key investment risks
High LNG prices lower gas consumption, impacting
GSPL’s transmission volume.
n
Monetization of the planned investment in new
trunk pipelines could take time given headwinds for
gas availability in India.
n
Recent developments
n
GSPL implemented PNGRB’s zonal tariff order,
effective July 27, 2012.
Valuation and view
n
Key investment arguments
Volume seems to have bottomed out:
We believe
GSPL’s volume would have bottomed out with
subdued domestic gas production; volume increase
is contingent on lowering of imported LNG prices.
n
Take or pay at minimal level:
GSPL’s revenues have
declined 19% from 1QFY12 (quarter of peak
volumes at 36.8mmscmd) despite 43% volume
decline due to take-or-pay component and tariff
increases by PNGRB. We understand that the take
or pay component is at a negligible level and any
volume growth is likely to result in higher revenues.
n
To watch out for capex in three trunk pipelines:
n
n
The stock trades at 10.3x FY16E EPS of INR9.5. Our
SOTP-based target price stands at INR93.
Neutral.
Sector view
Domestic gas supply is unlikely to increase
meaningfully in medium-term given the KG-D6
decline and production from new fields will take
atleast three years.
n
While, India has LNG import capacity, the
consumption is limited by high LNG prices and any
decline in LNG prices will give a big boost for import
benefiting consumers as well as transporters like
GAIL and GSPL.
n
Large supply from GAIL’s US LNG contracts is
expected to commence in FY17/FY18.
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY15
FY16
7.9
9.5
Consensus
Forecast
7.7
8.7
Variation
(%)
2.9
8.8
Target price and recommendation
Current
Price (INR)
98
Target
Price (INR)
93
Upside
(%)
-5.1
Reco
Neutral
Shareholding pattern (%)
Sep-14
Promoter
DII
FII
Others
37.7
33.3
7.6
21.3
Jun-14
37.7
33.7
6.6
21.9
Sep-13
37.7
33.3
4.0
25.0
Stock performance (1-year)
Note: FII Includes depository receipts
8 November 2014
4

Gujarat State Petronet
Financials and valuations
8 November 2014
5

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6