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1QFY2014 Result Update | Oil & Gas

August 14, 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
9.9 8.4 (129)bp 1.1 360 328 91.1 162 (17.5) (17.7) (17)bp (21.9)

`55 `67
12 months

1QFY2014 1QFY2013 % chg (yoy) 4QFY2013 % chg (qoq) 297 270 90.9 126 270 249 92.2 125

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 3,070 383 1 84/47 109,858 10 19,230 5,699 GSPT.BO GUJS@IN

Gujarat State Petronet (GSPL)s volumes continued to decline in 1QFY2014, led by declining production from KG D6, although the top-line increased due to higher realizations. We recommend Buy on the stock. Higher realizations led to top-line growth: GSPLs total operating revenues increased by 9.9% yoy to `297cr mainly due to increase in realization which although was partially offset by decline in transmission volumes. Realizations increased 56.0% yoy to 1.4/scm; however, transmission volumes decreased by 28.9% yoy to 22.1mmscmd. Higher interest costs mute PAT growth: GSPLs EBIDTA increased by 8.4% yoy to `270cr, mainly due to higher realizations. Depreciation expenses rose by 4.5% yoy to `46cr and interest costs rose 19.7% to `38cr. Hence, PAT increased by only 1.1% yoy to `126cr. 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 the stock at 8.0x FY2015 P/E to derive a target price of `67.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 37.7 22.2 4.0 36.0

Abs. (%) Sensex GSPL

3m (2.3)

1yr 9.1

3yr 5.9 (50.7)

(13.3) (24.5)

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)

FY2012
1,123 8.1 522 3.0 92 9.3 5.9 1.2 22.5 22.4 3.1 3.4

FY2013E
1,173 4.4 538 3.2 91 9.6 5.7 1.0 19.2 21.0 2.3 2.5

FY2014E
1,002 (14.6) 463 (14.1) 91 8.2 6.7 0.9 14.3 15.9 2.6 2.8

FY2015E
1,021 1.9 473 2.2 91 8.4 6.6 0.8 13.0 14.9 2.5 2.7

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

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

Source: Company, Angel Research; Note: CMP as of August 13, 2013

Please refer to important disclosures at the end of this report

GSPL | 1QFY2014 Result Update

Exhibit 1: 1QFY2014 performance (Standalone)


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

1QFY2014 297 27 270 90.9 13 46 38 199 67.1 73 36.6 126 42.5

1QFY2013 270 21 249 92.2 15 44 32 188 69.8 64 33.7 125 46.2

% chg (yoy) 9.9 28.0 8.4 (13.0) 4.2 19.7 5.7 14.7 1.1

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

% chg (qoq) (17.5) (16.0) (17.7) (11.8) (4.6) 20.5 (24.3) (28.2) (21.9)

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 9.9% yoy to `297cr, mainly due to increase in realization which although was partially offset by decline in transmission volumes. Realizations increased 56.0% yoy to 1.4/scm; however, transmission volumes decreased by 28.9% yoy to 22.1mmscmd.

Exhibit 2: Volumes decline yoy


35.0 30.0 25.0 32.8 31.1 31.1 28.6 2.00 27.6 1.80 21.9 22.1 1.60 1.40

Exhibit 3: Top-line jumps on higher realisations


400 350 300 29.1 35.0 30.0 25.0 20.0 (1.9) 9.3 (5.0) (1.3) (2.8) 10.0 5.0 (5.0) (10.0) 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14
Net Sales Net Sales growth (RHS)

(mmscmd)

15.0 10.0 5.0 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 Gas volumes Average realization (RHS)

200 150 100 50 -

0.80 0.60 0.40 0.20 -

Source: Company, Angel Research

Source: Company, Angel Research

Higher interest costs mute PAT growth: The companys EBIDTA also increased by 8.4% yoy to `270cr, mainly due to higher realizations. Depreciation expenses rose by 4.5% yoy to `46cr and interest costs rose 19.7% to `38cr. Hence, PAT increased by only 1.1% yoy to `126cr.

August 14, 2013

(%)

1.00

( ` cr)

20.0

( ` /scm)

1.20

250 9.9

15.0

GSPL | 1QFY2014 Result Update

Exhibit 4: Operating performance trend


340 320 300 100.0 90.0 80.0 70.0 60.0

Exhibit 5: PAT growth trend


170 160 150 162 30.0 20.0 10.0 133 119 126

( ` cr)

( ` cr)

(%)

280

328

260

50.0

270

252

254

249

256

240 220 200

40.0 30.0 20.0 10.0

130 120 110

126

129

125

(10.0) (20.0) (30.0)

3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 Operating Profit Operating Margins (RHS)

239

3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 PAT PAT growth (RHS)

Source: Company, Angel Research

Source: Company, Angel Research

Investment arguments
Volume growth unlikely in the near-term : KG-D6 production has declined from
59mmscmd during 1QFY2011 to under 18mmsmd currently. Going forward, we do not expect production from KG-D6 to increase during FY2014. Hence, we expect GSPLs gas transmission to decline 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 the stock at 6.0x FY2015 P/E to derive a target price of `67.

Exhibit 6: Key assumptions


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

FY2014E 8,970 1.10

FY2015E 9,370 1.12

Exhibit 7: Angel EPS forecast vs consensus


Angel Forecast FY2014E FY2015E
Source: Company, Angel Research

Bloomberg Consensus

Variation (%) (3.6) (5.9)

8.2 8.4

8.49 8.89

August 14, 2013

(%)

140

GSPL | 1QFY2014 Result Update

Exhibit 8: Recommendation summary


Company GAIL IGL GSPL Petronet CMP (`) 307 272 55 124 TP (`) 67 135 Neutral Neutral Buy Accum. Reco. Mcap (` cr) 40,255 3,780 3,070 9,476 22 9 Upside (%) P/E (x) FY14E 9.3 10.6 6.7 8.8 FY15E 9.2 10.1 6.6 7.3 P/BV (x) FY14E 1.4 2.2 0.9 1.8 FY15E 1.3 1.8 0.8 1.5 EV/EBITDA (x) FY14E 4.2 4.9 2.8 5.6 FY15E 3.9 4.6 2.7 4.4 RoE (%) FY14E 15.9 22.1 14.3 21.7 FY15E 14.4 19.6 13.0 21.9 RoCE (%) FY14E 16.8 27.6 15.9 21.8 FY15E 15.3 26.5 14.9 23.5

Source: Angel Research

Exhibit 9: One-year forward P/E


250 200

Share price (` )

150 100 50 0

Dec-08

Apr-07

Apr-12

Jul-08

Mar-10

Aug-10

Oct-09

Feb-08

May-09

7x
Source: Company, Angel Research

10x

13x

16x

Nov-11

Sep-07

Sep-12

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.

August 14, 2013

Feb-13

Jan-11

Jun-11

Jul-13

GSPL | 1QFY2014 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 1,002 (14.6) 87 39 22 26 915 (14.6) 91.4 182 733 (17.3) 73.2 114 80 11.5 700 (15.3) 700 237 33.9 463 463 463 (14.1) 46.2 8.2 8.2 (14.4) 1,021 1.9 88 40 22 26 933 1.9 91.5 199 734 0.2 72.0 102 82 11.5 715 2.2 715 242 33.9 473 473 473 2.2 46.3 8.4 8.4 2.2

August 14, 2013

GSPL | 1QFY2014 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 1,426 1,262 26 138 1,132 294 4,772 5,715 1,749 3,966 550 171 85 8 1,377 1,211 26 140 1,039 338 5,117 562 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 2,852 3,415 898 442 13 3 4,772 563 3,241 3,803 798 499 13 3 5,117 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

August 14, 2013

GSPL | 1QFY2014 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) 109 (66) 3 46 77 97 174 760 130 (212) 86 (166) 597 (569) (10) 17 (562) 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 698 182 44 (13) (181) 730 (500) 13 (487) (100) (82) (182) 61 1,201 1,262 713 199 (96) (13) (185) 617 (500) 13 (487) (100) (82) (182) (51) 1,262 1,211

August 14, 2013

GSPL | 1QFY2014 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) 6.4 (0.1) (0.4) 7.2 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 24 26 4,710 (345) 0.2 22 24 4,506 (329) 25.5 35.7 29.8 25.5 33.1 31.9 22.4 29.8 22.5 21.0 32.5 19.2 15.9 26.6 14.3 14.9 24.2 13.0 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 74.1 66.0 0.3 15.1 7.9 (0.2) 31.4 72.9 66.0 0.3 13.7 7.9 (0.2) 28.7 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 8.2 8.2 11.4 1.3 60.7 8.4 8.4 11.9 1.3 67.6 7.5 4.8 2.0 1.8 4.1 4.4 1.4 5.3 4.4 1.5 1.8 3.8 4.1 1.1 5.9 4.4 1.2 2.3 3.1 3.4 0.9 5.7 4.3 1.0 1.8 2.3 2.5 0.6 6.7 4.8 0.9 2.3 2.6 2.8 0.5 6.6 4.6 0.8 2.3 2.5 2.7 0.5 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

August 14, 2013

GSPL | 1QFY2014 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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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%)

August 14, 2013