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GSPL: Lower volumes drag profits - Views on News from Equitymaster
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GSPL: Lower volumes drag profits
Feb 8, 2014

Gujarat State Petronet Ltd (GUSP) has announced its results for third quarter of the fiscal year 2013-2014 (3QFY14). The net sales have declined by 7.9% on a year on year (YoY) basis while net profits for the quarter declined by 26.6% YoY

Performance summary
  • Revenues for the quarter registered a decline of 7.9% YoY. For the nine months ending December 2013 (9MFY14), the revenues registered a flattish growth of 0.7% YoY.
  • Operating profits during the quarter declined by 13.6% YoY with margins at 84.4% as compared to 90.0 % in 3QFY13. For 9MFY14, the operating profits declined by 2.2% YoY with operating margins at 88.9%, as compared to 91.5% in 9MFY13.
  • Net profits for the quarter declined by 26.6% YoY with net profit margins at 35.6%, as compared to a net profit margin of 44.7% in 3QFY13. For 9MFY14, the net profits declined by 13.0% YoY, with net profit margins at 40.0% as compared to 46.3% in 9MFY13.

Standalone financial summary
(Rs m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
Gas volumes (mmscm) 2,508 1,861 -25.8% 7,972 5,823 -27.0%
Sales 2,661 2,451 -7.9% 8,134 8,193 0.7%
Expenditure 267 382 42.7% 690 913 32.3%
Operating profit (EBDITA) 2,394 2,069 -13.6% 7,444 7,280 -2.2%
EBDITA margin (%) 90.0% 84.4%   91.5% 88.9%  
Other income 175 139 -20.4% 511 407 -20.5%
Interest (net) 314 353 12.1% 947 1,099 16.1%
Depreciation 478 462 -3.3% 1,381 1,390 0.6%
Profit before tax 1,776 1,394 -21.5% 5,627 5,198 -7.6%
Pretax margin (%) 66.8% 56.9%   69.2% 63.4%  
Tax 586 520 -11.3% 1,860 1,921 3.3%
Profit after tax/(loss) 1,190 873 -26.6% 3,767 3,277 -13.0%
Net profit margin 44.7% 35.6%   46.3% 40.0%  
No. of shares (m)         563  
Diluted earnings per share (Rs)*         8.7  
Price to earnings ratio (x)**         6.6  
**On trailing 12 months basis

What has driven performance in 3QFY14?
  • The net sales declined by 7.9% YoY mainly on account of fall in the gas volumes transported. The gas volumes for the quarter stood at 1,861 million standard cubic metre (mscm), down 25.8% YoY and down 4.4% on a quarter on quarter (QoQ) basis. The average realisations for the quarter were however up by around 24.1% YoY (down 7.6% QoQ).

  • The operating profit margins during the quarter slipped to 84.4% from 90.0 % in 3QFY13 (90.6% in 2QFY14). This was mainly on account of decline in the volumes and overall increase in the operational expenses.

    Cost break-up
    (Rs m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
    Staff expenses 91 109 19.5% 192 228 18.9%
    as a % of sales 3.4% 4.4%   2.4% 2.8%  
    Operation and maintenance expenses 117 203 73.9% 336 512 52.0%
    as a % of sales 4.4% 8.3%   4.1% 6.2%  
    Other expenses 59 69 17.1% 162 173 7.2%
    as a % of sales 2.2% 2.8%   2.0% 2.1%  
    Total expenses 267 382 42.7% 690 913 32.3%
    as a % of sales 10.0% 15.6%   8.5% 11.1%  

  • The net profit for the quarter declined by 26.6% YoY, at a rate higher than the decline in the operating profits. This was on account of fall in other income, an increase in the effective tax rate and increase in interest expenses.
What to expect?
The decline in gas volumes is a major concern for the company. Apart from fall in domestic gas supplies, higher LNG cost is also a cause for the muted volumes.

We expect the volumes to remain low and as such the company suffers from capacity underutilization risks. Further, there is a risk to realizations because of downward revision in take or pay contracts. However, most of these concerns have been factored in the stock price. At the current price of Rs 57, the stock is trading at price to earnings ratio of 5.1 times with respect to our FY16 earnings estimates. We maintain a 'Hold' view on the stock. We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities, please ensure that you broadly follow our suggested asset allocation and that no single stock comprises more than 5% of your portfolio.

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