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4QFY2013 Result Update | Oil & Gas

June 3, 2013

Gujarat State Petronet


Performance Highlights
Quarterly performance (Standalone)
(` cr) Total operating income EBITDA EBITDA margin (%) PAT
Source: Company, Angel Research

BUY
CMP Target Price
Investment Period
29.1 28.8 (19)bp 24.9 266 239 90.0 119 35.2 36.9 112bp 35.8

`58 `68
12 months

4QFY2013 4QFY2012 % chg (yoy) 3QFY2013 % chg (qoq) 360 328 91.1 162 279 254 91.3 129

Stock Info Sector Market Cap (` cr) Net debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Oil & Gas 3,278 486 1 84/57 140,122 10 19,610 5,939 GSPT.BO GUJS@IN

For Gujarat State Petronet (GSPL), volumes continued to decline in 4QFY2013, led by declining production from KG D6. The top-line increased due to one-time effect of higher realizations. We recommend Buy on the stock. Higher realizations led to top-line growth: GSPLs total operating revenues increased by 29.1% yoy to `360cr, mainly due to increase in transmission realization which included a one-time retrospective increase w.e.f July 27, 2012 due to a PNGRB order. Transmission volumes however, decreased by 28.7% yoy to 22.2mmscmd whereas transmission tariffs increased by 80.4% yoy to `1.8/scm. Higher tax rate mutes PAT growth: The companys EBIDTA increased by 28.8% yoy to `328cr, mainly due to higher realization. The tax rate increased substantially to 38.6% in 4QFY2013 compared to 32.0% in 4QFY2012. The PAT increased by 24.9% yoy to `162cr. Outlook and valuation: We believe GSPL is a leveraged play on increasing gas demand in Gujarat (the countrys hydrocarbon capital) from gas-based power plants and rising spot prices. However, we remain concerned due to declining gas production from the KG-D6 block. Hence, we expect a muted volume growth for GSPL during FY2014. Nevertheless, valuations are undemanding for a utility company at 0.8x FY2015E P/BV. Hence, we recommend a Buy rating on the stock, valuing it at 6.0x FY2015 P/E, to arrive at a target price of `68.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 37.7 23.0 4.2 35.1

Abs. (%) Sensex GSPL

3m 3.7

1yr 22.8

3yr 15.2 (41.1)

(12.1) (17.4)

Key financials (Standalone)


Y/E March (` cr) Net sales % chg Net profit % chg OPM (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2012
1,123 8.1 522 3.0 92 9.3 6.3 1.3 22.5 22.4 3.2 3.5

FY2013E
1,173 4.4 538 3.2 91 9.6 6.1 1.1 19.2 21.0 2.5 2.7

FY2014E
1,171 (0.2) 569 5.8 92 10.1 5.8 0.9 17.3 19.1 2.2 2.4

FY2015E
1,287 9.9 639 12.2 92 11.3 5.1 0.8 16.8 19.1 1.8 2.0

Bhavesh Chauhan
Tel: 022 - 3935 7800 Ext: 6821 bhaveshu.chauhan@angelbroking.com

Vinay Rachh
Tel: 022- 39357800 Ext: 6841 vinay.rachh@angelbroking.com

Please refer to important disclosures at the end of this report

GSPL | 4QFY2013 Result Update

Exhibit 1: 4QFY2013 performance (Standalone)


(` cr) Total Operating Income Total operating expenditure EBITDA EBITDA Margin (%) Other Income Depreciation Interest PBT post GSEDS PBT Margin (%) Total Tax % of PBT PAT PAT Margin (%)
Source: Company, Angel Research

4QFY2013 360 32 328 91.1 15 48 32 263 73.1 102 38.6 162 44.9

4QFY2012 279 24 254 91.3 14 47 32 190 68.3 61 32.0 129 46.4

% chg (yoy) 29.1 31.9 28.8 6.3 3.0 (0.2) 38.3 66.7 24.9

3QFY2013 266 27 239 90.0 17 48 31 178 66.8 59 33.0 119 44.7

% chg (qoq) 35.2 20.1 36.9 (14.6) 0.5 0.3 48.1 73.1 35.8

FY2013 1,173 101 1,072 91.4 66 186 126 826 70.4 288 34.8 538 45.9

FY2012 1,123 93 1,030 91.7 51 182 130 769 68.4 247 32.1 522 46.5

% chg (yoy) 4.4 8.3 4.1 29.4 2.3 (3.1) 7.4 16.4 3.2

Higher realizations led to top-line growth: GSPLs total operating revenues increased by 29.1% yoy to `360cr, mainly due to increase in transmission realization, which included a one-time retrospective increase w.e.f 27th July 2012 due to a PNGRB order. Transmission volumes however, decreased by 28.7% yoy to 22.2mmscmd whereas transmission tariffs increased by 80.4% yoy to `1.8/scm.

Exhibit 2: Volumes continue to slide


40.0
35.0 30.0 35.2

Exhibit 3: Top-line jumps on higher realisations


2.00 27.6
1.80 1.60 400 350 300 11.0 9.3 (1.3) 29.1 35.0 30.0 25.0 20.0 10.0 5.0 (5.0) (10.0) 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 15.0

32.8

31.1

31.1 28.6

(mmscmd)

( ` /scm)

25.0 20.0

22.2

1.40
1.20 1.00

(1.9)

(5.0)

(2.8)

250

( ` cr)

200 150 100 50 -

15.0 10.0
5.0 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 Gas volumes Average realization (RHS)

0.80
0.60 0.40

0.20
-

Net Sales

Net Sales growth (RHS)

Source: Company, Angel Research

Source: Company, Angel Research

Higher tax rate mutes PAT growth: The companys EBIDTA increased by 28.8% yoy to `328cr, mainly due to higher realization. The tax rate increased substantially to 38.6% in 4QFY2013 compared to 32.0% in 4QFY2012. The PAT increased by 24.9% yoy to `162cr.

June 3, 2013

(%)

GSPL | 4QFY2013 Result Update

Exhibit 4: Operating performance


340 320 100.0 90.0 80.0

Exhibit 5: PAT growth trend


170 162 160 50.0 40.0 30.0

300
( ` cr)

70.0
( ` cr) (%)
60.0

280
328

150
140 130 129 126 129 125 119 133

20.0

260
258
252

50.0

254

249

256

240 220 200

40.0
239
30.0 20.0

(10.0) (20.0) (30.0)

120
110

10.0
2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 PAT PAT growth (RHS)

Operating Profit

Operating Margins (RHS)

Source: Company, Angel Research

Source: Company, Angel Research

June 3, 2013

(%)

10.0

GSPL | 4QFY2013 Result Update

Investment arguments
Volume growth unlikely in the near-term : KG-D6 production has declined from
59mmscmd during 1QFY2011 to under 24mmsmd currently. Going forward, we do not expect production from KG-D6 to increase in FY2014. Hence, we expect GSPLs gas transmission to remain flat during FY2014.

Tariff decline risk captured in valuations: Transmission tariff is one of the biggest
variables affecting GSPL's valuations. We believe tariffs are likely to fall during FY2014. Nevertheless, we believe the anticipated tariff decline is factored in the current price levels.

Outlook and valuation


We believe GSPL is a leveraged play on increasing gas demand in Gujarat (the countrys hydrocarbon capital) from gas-based power plants and rising spot prices. However, we remain concerned due to declining gas production from the KG-D6 block. Hence, we expect a muted volume growth for GSPL during FY2014. Nevertheless, valuations are undemanding for a utility company at 0.8x FY2015E P/BV. Hence, we recommend a Buy rating on the stock, valuing it at 6.0x FY2015 P/E, to arrive at a target price of `68.

Exhibit 6: Key assumptions


Particulars Transmission volume (mmscm) Avg. realisations/scm
Source: Company, Angel Research

FY2014E 9,628 1.20

FY2015E 10,591 1.20

Exhibit 7: Angel EPS forecast vs consensus


Angel Forecast FY2014E FY2015E
Source: Company, Angel Research

Bloomberg Consensus

Variation (%) 21.5 28.7

10.1 11.3

8.3 8.8

June 3, 2013

GSPL | 4QFY2013 Result Update

Exhibit 8: Recommendation summary


Company GAIL IGL GSPL Petronet CMP (`) 311 278 58 141 TP (`) 68 167 Neutral Neutral Buy Buy Reco. Mcap (` cr) 39,488 3,894 3,278 10,511 17 19 Upside (%) P/E (x) FY14E 9.1 10.4 5.8 9.4 FY15E 8.7 9.1 5.1 8.4 P/BV (x) FY14E 1.4 2.2 0.9 2.0 FY15E 1.3 1.8 0.8 1.7 EV/EBITDA (x) FY14E 4.1 4.8 2.4 5.6 FY15E 3.6 4.0 2.0 4.8 RoE (%) FY14E 16.4 22.7 17.3 22.9 FY15E 15.2 21.8 16.8 21.5 RoCE (%) FY14E 17.4 26.6 19.1 21.6 FY15E 16.2 27.8 19.1 22.9

Source: Angel Research

Exhibit 9: One-year forward P/E


250

200
Share price (` )

150
100 50 0

Dec-09

Apr-08

Mar-11

Aug-11

Sep-08

Feb-09

Oct-10

May-10

7x
Source: Company, Angel Research

10x

13x

16x

19x

Company background
GSPL is a pure natural gas transmission company. GSPL owns and operates a gas transmission network in Gujarat totaling to approximately 1,874km. The company transports gas to more than 31 customers, including refineries, fertilizer plants, petrochemical plants etc. During FY2013, it transported an average of 27mmscmd of gas.

June 3, 2013

Nov-12

Nov-07

Apr-13

Jul-09

Jan-07

Jan-12

Jun-12

Jun-07

GSPL | 4QFY2013 Result Update

Profit & loss statement (Standalone)


Y/E March (` cr) Total operating income % chg Total Expenditure O& M Expenditure Staff expenditure Other operating expenditure EBITDA % chg (% of Net Sales) Depreciation and amortization EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Prior period items Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of asso. Less: Minority interest (MI) PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E 992 103.5 62 28 10 24 930 118.8 93.7 236 693 172.4 69.9 94 25 4.0 3 624 225.5 624 213 34.1 411 411 411 231.9 41.4 7.4 7.4 235.1 1,039 4.8 77 36 15 26 962 3.5 92.6 130 832 20.0 80.1 96 29 3.8 765 22.6 765 259 33.8 506 506 506 23.2 48.7 10.3 10.3 40.3 1,123 8.1 93 44 20 29 1,030 7.1 91.7 182 848 1.9 75.5 130 51 6.6 769 0.5 769 247 32.1 522 522 522 3.0 46.5 9.3 9.3 (10.1) 1,173 4.4 101 51 25 25 1,072 4.1 91.4 186 886 4.5 75.5 126 66 8.0 826 7.4 826 288 34.8 538 538 538 3.2 45.9 9.6 9.6 3.2 1,171 (0.2) 96 46 20 30 1,075 0.3 91.9 182 893 0.8 76.3 114 83 9.6 862 4.3 862 292 33.9 569 569 569 5.8 48.7 10.1 10.1 5.4 1,287 9.9 105 51 22 33 1,182 9.9 91.9 199 983 10.1 76.4 102 86 8.9 967 12.3 967 328 33.9 639 639 639 12.2 49.7 11.3 11.3 12.3

June 3, 2013

GSPL | 4QFY2013 Result Update

Balance sheet (Standalone)


Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Total Loans Deferred Tax Liability Other Long Term Liabilities Long Term Provisions Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Long Term Loans and Adv. Other Non-current assets Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 3,325 889 2,437 539 67 755 174 360 221 833 (78) 0.3 2,964 4,194 1,012 3,182 334 148 93 2 438 239 51 149 617 (178) 3,569 4,322 1,182 3,140 443 171 85 8 727 542 26 159 576 151 3,997 4,815 1,368 3,447 450 171 85 8 1,387 1,201 26 159 1,109 278 4,438 5,315 1,551 3,765 450 171 85 8 1,546 1,361 26 159 1,132 414 4,892 5,715 1,749 3,966 550 171 85 8 1,775 1,575 26 174 1,130 645 5,424 562 1,001 1,564 1,260 141 2,964 563 1,515 2,078 1,218 264 6 2 3,569 563 1,998 2,561 1,095 324 13 3 3,997 563 2,474 3,036 998 387 13 3 4,438 563 2,959 3,522 898 455 13 3 4,892 563 3,514 4,077 798 532 13 3 5,424 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

June 3, 2013

GSPL | 4QFY2013 Result Update

Cash flow statement (Standalone)


Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2010 FY2011 FY2012 FY2013E 627 236 184 (13) (187) 847 (798) (31) 13 (817) 0 109 (66) 3 46 77 97 174 760 130 (212) 86 (166) 597 (569) (10) 17 (562) 0 222 (66) (127) 30 30 174 239 766 182 (92) 98 (162) 792 (231) 44 (187) (401) (82) (65) (155) (303) 303 239 542 826 186 533 (225) 1,319 (500) (500) (94) (66) (160) 660 542 1,201 FY2014E FY2015E 860 182 23 (15) (224) 826 (500) 15 (485) (100) (82) (182) 159 1,201 1,361 965 199 (16) (17) (251) 880 (500) 17 (483) (100) (82) (182) 214 1,361 1,575

June 3, 2013

GSPL | 4QFY2013 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) RoIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating RoE Returns (%) RoCE (Pre-tax) Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT/Int.) 0.7 1.2 7.4 0.5 1.0 8.7 0.2 0.5 6.5 (0.1) (0.2) 7.0 (0.1) (0.4) 7.8 (0.2) (0.7) 9.7 0.3 41 24 2,519 (59) 0.3 34 25 2,445 (120) 0.3 21 24 2,069 (133) 0.3 21 25 2,922 (205) 0.2 22 24 4,265 (292) 0.2 21 23 3,913 (266) 25.5 35.7 29.8 25.5 33.1 31.9 22.4 29.8 22.5 21.0 32.5 19.2 19.1 32.3 17.3 19.1 32.6 16.8 69.9 66.0 0.4 18.1 5.1 1.0 30.9 87.2 66.0 0.4 20.3 5.1 0.6 37.4 76.0 66.0 0.3 17.3 7.4 0.3 32.4 76.4 66.0 0.4 18.4 8.0 0.0 36.8 77.1 66.0 0.4 18.3 7.9 (0.2) 37.9 77.2 66.0 0.4 18.4 7.9 (0.2) 38.6 7.4 7.4 11.6 1.0 27.8 10.3 10.3 12.6 1.0 36.9 9.3 9.3 12.5 1.3 45.5 9.6 9.6 12.9 1.0 54.0 10.1 10.1 13.3 1.3 62.6 11.3 11.3 14.9 1.3 72.5 7.9 5.0 2.1 1.7 4.3 4.6 1.4 5.6 4.6 1.6 1.7 3.9 4.3 1.1 6.3 4.6 1.3 2.2 3.2 3.5 0.9 6.1 4.5 1.1 1.7 2.5 2.7 0.7 5.8 4.4 0.9 2.2 2.2 2.4 0.5 5.1 3.9 0.8 2.2 1.8 2.0 0.4 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

June 3, 2013

GSPL | 4QFY2013 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

GSPL No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

June 3, 2013

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