Stock Market Update on GSPL for 4QFY2011

Stock Market Update on GSPL for 4QFY2011 with an Accumulate recommendation and a Target Price of `105 (12 months).

For 4QFY2011, GSPL reported strong set of numbers on the bottom-line front, despite lower volumes and a marginal increase in realisation on a yoy basis on account of change in depreciation rate (from 4.75% to 3.17% w.e.f.
April 1, 2010) adopted by the company during the quarter. Thus, the bottom line surged by robust 39.7% yoy to `150.6cr (`107.9cr). We recommend Accumulate on the stock.

Transmission volume flat, realisation higher: In 4QFY2011, GSPL recorded a marginal 1.1% yoy decrease in revenue to `255cr (`258cr) on account of a 2.4% yoy dip in volumes transmitted, which stood at 3,200mmscm (3,278mmscm). However, average transmission realisation increased by 1.3% on a yoy basis to `797/’000scm (`787/’000scm).

Outlook and valuation: Although GSPL is a leveraged play on increasing gas demand in Gujarat (the country’s hydrocarbon capital), slower ramp-up in domestic production from the KG-D6 field and expensive spot LNG are taking a toll on the company’s volume visibility in the near term. This has resulted in the stock’s under performance in the recent past. However, limited downside risk on the tariff front and successful winning of three inter-state pipelines provide support to valuations. We have valued GSPL at 7x FY2013E EBITDA, which provides a target price of `105 for the stock, implying an upside of 6.1% from the current level. Hence, we recommend an Accumulate rating on the stock.

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