Result Update Gujarat State Petronet Accumulate results were better than our estimates largely driven by higher than expected volumes. Higher volumes were due to low gas cost and these spot volumes resulted in higher transmission tariffs. The volumes were at 2,904 MMSCM above our estimates of 2,466 MMSCM. Average transportation at ` 1.112 per SCM. The volume traction has improved in this quarter, though withstand would be crucial. We feel that the key trigger to watch from these levels is the increase in the transportation tariff of long-term volumes. A lot of speculation has been going around regarding the timing and quantum of increase in transportation tariff. We feel if there is a significant increase in transportation tariff, the profitability can rise substantially. GSPL being a pure natural gas transporter does not own the gas at any point in time thereby negating the risk of the fluctuations in the natural gas prices. Tariff hike is expected in Q4FY18. Gujarat accounts for nearly 40% of India s gas consumption and we expect this trend to continue. With the increase in gas supply through RLNG route, GSPL is a natural beneficiary of the increased usage of gas. With a network of around 2,500 km, GSPL is well placed to tap the gas potential of Gujarat. The systemic scale up with widening of the network, committed large industry consumers with Gas Transmission Agreements (GTA) brings the much-needed predictability to GSPL s business model. Result (` Mn) Particulars YoY (%) QoQ (%) Net Sales 3,348 2,580 29.8 2,963 13.0 Expenditure 493 319 54.8 204 141.9 Other Expenditure 357 242 47.6 123 189.8 Operating Profit 2,855 2,262 26.3 2,760 3.5 Other Income 278 287 (3.1) 164 69.4 Interest 90 148 (38.9) 106 (14.4) Depreciation 438 436 0.5 430 2.0 PBT 2,605 1,965 32.6 2,389 9.1 Tax 836 666 25.4 864 (3.3) Net Profit 1,770 1,298 36.3 1,525 16.0 CMP ` 212 Target / Upside ` 240 /13% BSE Sensex 32,946 NSE Nifty 10,195 Scrip Details Equity / FV ` 5,636 mn/` 10/- Market Cap ` 113bn USD 1.7bn 52-week High/Low ` 223/119 Avg. Volume (no) 11,08,830 NSE Symbol Bloomberg Code Shareholding Pattern Sep 17 (%) GSPL GUJS IN Promoters 37.7 MF/Banks/FIs 18.8 FIIs 17.6 Public / Others 25.9 Valuation (x) FY17 FY18E FY19E P/E 24.1 19.1 17.0 EV/EBITDA 13.3 10.2 9.1 ROE 11.6 13.2 13.3 ROCE 14.2 17.2 17.7 Estimates (` mn) FY17 FY18E FY19E Net Sales 10,276 12,497 13,541 EBITDA 8,3 11,070 12,038 PAT 4,966 6,249 7,033 EPS 8.8 11.1 12.5 Sr. Analyst: Priyank Chandra Tel: +9122 4096 9737 E-mail: priyank@dolatcapital.com Analyst: Nidhi Doshi Tel: +9122 4096 9795 E-mail: nidhid@dolatcapital.com EPS (in `) 3.14 2.30 36.2 2.71 16.0 OPM (%) 85.3 87.7-93.1 - NPM (%) 52.8 50.3-51.5 - Tax Rate (in %) 32.1 33.9 36.2 November 14, 2017
KPI s ` in Mn YoY (%) QoQ (%) Segment Revenue Gas Transportation 3,230.4 2,443.8 32.2 2,831.9 14.1 Sale of Electricity 125.2 152.5 (17.9) 144.0 (13.0) Gas Transported (in MMSCM) 2,904 2,265 28.2 2,447 18.7 Average Tariff (in ` per SCM) 1.112 1.079 3.1 1.157 (3.9) Gas Transported (in MMSCMD) 31.6 24.6 28.2 26.9 17.4 Valuation GSPL - the largest player in Gujarat and second largest trunk line operator in India has a huge prospect for the company to cash-in the conversion of India from oil consumption to gas consumption. With high FCF yield, we give an Accumulate recommendation with a TP of ` 240/share based on SOTP valuation. We value the core business at ` 189.5 per share on DCF basis, three transnational pipelines at ` 6 per share and GSPL's stake in Gujarat Gas and Sabarmati Gas at ` 41.5 per share and ` 3 per share respectively. Key highlights Revenue increased by 29.8% on a YoY basis to ` 3,348mn. On a sequential basis, revenue increased by 13%. There was a growth in employee cost of 77.5% on a YoY basis to ` 136mn and a growth of 68.7% on a sequential basis. Other expenditure increased by 47.6% on a YoY basis to ` 357mn. Sequentially it was up by 190%. GSPL made an operating profit of ` 2,855mn in as compared to an operating profit of ` 2,262mn in. This was a growth of 26%. Depreciation increased by 2% on a sequential basis to ` 438mn. Other income decreased by 3.1% YoY to ` 278mn. On a sequential basis, it was up by 69% Net profit increased by 36.3% YoY to ` 1,770mn. This was a growth of 16% on a sequential basis. Gas transportation rose by 28.2% YoY to 31.6 MMSCMD. Average Tariff increased by 3.1% YoY to ` 1.112 per SCM compared to ` 1.157 per SCM in. November 14, 2017 2
Q1FY16 Q1FY16 Q1FY16 Q1FY16 OPM (%) NPM (%) 94 92 90 86 84 82 80 78 76 89 84 90 85 82 93 85 54 52 50 48 46 44 42 40 44 43 50 43 47 50 44 52 51 53 Gas Transported (MMSCMD) Average Tariff (Rs. Per SCM) 32 31 30 29 28 27 26 25 24 23 24.2 24.3 25.1 24.4 25.1 24.6 26.2 23.4 26.9 31.6 1.3 1.2 1.2 1.1 1.1 1.0 1.06 1.07 1.05 1.03 1.07 1.08 1.09 1.20 1.16 1.11 November 14, 2017 3
Income Statement (` mn) Net Sales 9,870 10,169 12,447 13,491 Other Operational income 49 107 50 50 Total Income 9,919 10,276 12,497 13,541 Total Expenditure 1,259 1,393 1,426 1,503 Employee Expenses 361 3 453 491 Other Expenses 898 1,004 974 1,012 EBIDTA (Excl. OI) 8,660 8,3 11,070 12,038 EBIDTA (Incl. OI) 9,317 9,765 11,970 13,238 Other Income 656 2 900 1,200 Interest 799 596 621 611 Depreciation 1,829 1,791 1,1 1,972 PBT & EO Items 6,6 7,378 9,468 10,656 Profit Before Tax 6,6 7,378 9,468 10,656 Tax 2,235 2,411 3,219 3,623 Net Profit 4,454 4,966 6,249 7,033 Balance Sheet (` mn) Sources of Funds Equity Capital 5,633 5,636 5,639 5,643 Other Reserves 30,980 35,218 40,147 45,860 Net Worth 40,692 44,960 49,929 55,681 Secured Loans 9,243 6,305 6,205 6,105 Unsecured Loans 1,427 0 0 0 Loan Funds 10,670 6,305 6,205 6,105 Deferred Tax Liability 4,723 4,719 4,860 4,860 Total Capital Employed 56,085 55,984 60,995 66,647 Applications of Funds Gross Block 33,060 35,277 37,051 38,825 Less: Accumulated Dep. 1,829 3,620 5,502 7,473 Net Block 31,231 31,657 31,549 31,352 Capital Work in Progress 7,679 6,864 5,928 6,212 Investments 7,311 7,655 8,420 9,262 Current Assets, Loans & Advances Inventories 1,177 1,123 1,228 1,331 Sundry Debtors 1,518 1,216 2,046 2,218 Cash and Bank Balance 5,529 8,026 12,355 16,775 Loans and Advances 144 136 149 164 Other Current Assets 3,875 1,656 1,739 1,826 sub total 12,242 12,158 17,517 22,314 Less: Current Liabilities & Provisions Current Liabilities 2,238 2,226 2,293 2,361 Provisions 140 124 128 131 sub total 2,378 2,350 2,420 2,493 Net Current Assets 9,865 9,808 15,097 19,821 Total Assets 56,085 55,984 60,995 66,647 E Estimates Cash Flow (` mn) Profit before tax 6,679 7,378 9,468 10,656 Depreciation & w.o. 1,843 1,791 1,1 1,972 Net Interest Exp 389 50 621 611 Direct taxes paid (2,062) (2,228) (3,219) (3,623) Chg. in Working Capital (630) 2,534 (960) (304) Other (190) (90) 142 0 (A) CF from Opt. Activities 6,030 9,436 7,933 9,311 Capex (1,770) (1,052) (838) (2,058) Free Cash Flow 4,259 8,384 7,095 7,253 Inc./ (Dec.) in Investments (824) (346) (765) (842) Other (616) (2,278) 0 0 (B) CF from Inv. Activities (3,210) (3,676) (1,604) (2,900) Inc./(Dec.) in Debt (978) (4,329) (100) (100) Interest exp net (1,208) (1,039) (621) (611) Dividend Paid (Incl. Tax) (813) (1,017) (1,320) (1,320) (C) CF from Financing (2,972) (6,366) (2,000) (1,991) Net Change in Cash (152) (606) 4,329 4,420 Opening Cash & Cash Equ. 909 758 8,026 12,355 Closing Cash & Cash Equi. 756 152 12,355 16,775 Important Ratios (A) Measures of Performance (%) EBIDTA Margin (excl. O.I.) 87.3 86.4.6.9 Interest / Sales 8.1 5.9 5.0 4.5 Tax/PBT 33.4 32.7 34.0 34.0 Net Profit Margin 44.9 48.3 50.0 51.9 (B) As Percentage of Net Sales Employee Expenses 3.7 3.8 3.6 3.6 Other Expenses 9.1 9.9 7.8 7.5 (C) Measures of Financial Status Debt/Equity (x) 0.3 0.1 0.1 0.1 Interest Coverage (x) 11.7 16.4 19.3 21.7 Average Cost of Debt (%) 7.2 7.0 9.9 9.9 Debtors Period (days) 56.1 43.7 60.0 60.0 Closing stock (days) 43.5 40.3 36.0 36.0 Inventory Turnover Ratio (x) 8.4 9.1 10.1 10.1 Fixed Assets Turnover (x) 0.3 0.3 0.3 0.3 WCTurnover (x) 1.0 1.0 0.8 0.7 Non-Cash WC (` Mn) 4,335 1,782 2,742 3,046 (D) Measures of Investment EPS (`) 7.9 8.8 11.1 12.5 CEPS (`) 11.2 12.0 14.4 16.0 DPS (`) 1.5 1.5 2.0 2.0 Dividend Payout (%) 19.0 17.0 18.0 16.0 Profit Ploughback (%) 81.0 83.0 82.0 84.0 Book Value (`) 72.2 79.8.5 98.7 RoANW (%) 11.5 11.6 13.2 13.3 RoACE (%) 13.7 14.2 17.2 17.7 (E) Valuation Ratios CMP (`) 212 212 212 212 P/E (x) 26.8 24.1 19.1 17.0 Market Cap. (` Mn.) 1,19,428 1,19,481 1,19,557 1,19,633 MCap/ Sales (x) 12.1 11.7 9.6 8.9 EV (` Mn.) 1,24,569 1,17,760 1,13,407 1,08,963 EV/Sales (x) 12.6 11.6 9.1 8.1 EV/EBDITA (x) 14.4 13.3 10.2 9.1 P/BV (x) 2.9 2.7 2.4 2.1 FCF Yiels (%) 1.8 2.5 5.4 5.5 Dividend Yield (%) 0.7 0.7 0.9 0.9 E Estimates November 14, 2017 4
DART RATING MATRIX Total Return Expectation (12 Months) Buy > 20% Accumulate 10 to 20% Reduce 0 to 10% Sell < 0% DART Team Purvag Shah Managing Director purvag@dolatcapital.com +9122 4096 9747 Amit Khurana, CFA Head of Equities amit@dolatcapital.com +9122 4096 9745 CONTACT DETAILS Equity Sales Designation E-mail Direct Lines Kishor Bagri, CFA VP - Equity Sales kishorb@dolatcapital.com +9122 4096 9746 Kartik Sadagopan VP - Equity Sales kartiks@dolatcapital.com +9122 4096 9762 Kapil Yadav VP - Equity Sales kapil@dolatcapital.com +9122 4096 9735 Yomika Agarwal VP - FII Sales yomika@dolatcapital.com +9122 4096 9773 Derivatives Strategist Designation E-mail Bhavin Mehta VP - Derivatives Strategist bhavinm@dolatcapital.com +9122 4096 9705 Equity Trading Designation E-mail P. Sridhar VP and Head of Sales Trading sridhar@dolatcapital.com +9122 4096 9728 Chandrakant Ware AVP - Equity Sales Trading chandrakant@dolatcapital.com +9122 4096 9707 Derivatives Trading Designation E-mail Shirish Thakkar AVP - Derivatives shirisht@dolatcapital.com +9122 4096 9702 Hardik Mehta Sales Trader hardikm@dolatcapital.com +9122 4096 9748 Dolat Capital Market Private Limited. 20, Rajabahadur Mansion, 1st Floor, Ambalal Doshi Marg, Fort, Mumbai - 400 001
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