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Gujarat State Petronet: Higher tariffs cap losses
Jun 1, 2012

Gujarat State Petronet Limited (GSPL) has announced its results for the quarter ending March 31, 2012 (4QFY12). During the quarter, the company has reported an 8.0% YoY (year on year) growth in the topline and 14.2% decline in the bottomline on a standalone basis. For FY12, the standalone topline and bottomline registered a growth of 7.3% YoY and 3.1% YoY respectively. On a consolidated basis, the topline for FY12 registered a growth of 7.3% YoY while the bottomline declined by 0.7% YoY. Here is our analysis of the results.

Performance summary
  • The company registered a growth of 8.0% YoY (up 2.2% on a quarter on quarter (QoQ) basis) during the quarter. For full year, the revenues grew by 7.3% YoY.
  • The operating profits for the quarter registered a growth of 9.4% YoY, with margins at 91.3% versus margins at 90.1% in 4QFY11. For full year, the operating profits were up by 6.2% YoY with margins at 91.7% versus 92.6% last year
  • The company reported a 14.2% YoY decline in the bottomline during the quarter. The net profit margins during the quarter stood at 44.1% versus 56.9% in 4QFY11


Standalone financial snapshot
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Total income from operations 2,580 2,788 8.0% 10,465 11,233 7.3%
Total expenses 255 244 -4.3% 772 935 21.2%
Operating profits 2,326 2,544 9.4% 9,694 10,298 6.2%
Operating profit/EBITDA margins (%) 90.1% 91.3%   92.6% 91.7%  
Other income 68 140 106.2% 216 513 137.4%
Interest expenses 265 316 19.5% 991 1,302 31.4%
Depreciation (173) 466 NA 1,299 1,819 40.0%
Profit before tax 2,302 1,902 -17.4% 7,620 7,690 0.9%
Profit before tax margin (%) 86.9% 65.0%   71.3% 65.5%  
Taxes 796 610 -23.4% 2,556 2,470 -3.4%
Net income 1,506 1,293 -14.2% 5,064 5,221 3.1%
Net income margins (%) 56.9% 44.1%   47.4% 44.4%  
No. of shares (m)         562.699  
Diluted earnings per share (Rs)*         9.3  
P/E ratio(x)*         6.8  

What has driven performance in 4QFY12?
  • The company registered a growth of 8.0% YoY (up 2.2% on a quarter on quarter (QoQ) basis) during the quarter. The growth was on account of higher transmission tariffs and stability from Take or Pay and other Long term contracts that more than offset the decline in gas transmission volumes. The gas transmission volumes during the quarter declined by 11.6% YoY, (down 6.1% QoQ). The volumes were down due to fall in domestic gas production (mainly from KG D6 fields) and lesser offtake from power plants. Of the total, Reliance contributed to around 51% (down from 60% at close of last fiscal year) of gas volumes while 35% -40% came from Petronet LNG. The transmission tariffs for the quarter however registered a growth of 21.1% YoY (up 6.3% QoQ). For full year, the revenues grew by 7.3% YoY. The volumes transmitted in FY12 declined by 4.4% YoY. However, this was offset by a 9.8% YoY increase in transmission tariffs.

  • The operating profits for the quarter registered a growth of 9.4% YoY, with margins at 91.3% versus margins at 90.1% in 4QFY11. This was mainly due to an improvement in realizations. Sequentially, the profits were up marginally by 1.3% QoQ. The cost of operations during the quarter declined (YoY) to some extent on account of a fall in other expenditures (as a % of sales). For full year, the operating profits were up by 6.2% YoY with margins at 91.7% versus 92.6% last year.

    Cost breakup
    (Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
    Operation and Maintenance expenses 90 107 19.0% 357 444 24.3%
    % sales 3.5% 3.8%   3.4% 4.0%  
    Staff cost 43 44 4.1% 149 197 32.5%
    % sales 1.7% 1.6%   1.4% 1.8%  
    Other expenditure 122 92 -24.4% 266 294 10.7%
    % sales 4.7% 3.3%   2.5% 2.6%  
    Total cost 255 244 -4.3% 772 935 21.2%
    % sales 9.9% 8.7%   7.4% 8.3%  

  • The company reported a 14.2% YoY decline in the bottomline on account of depreciation expense adjustment. The net profit margins during the quarter stood at 44.1% versus 56.9% in 4QFY11. However, sequentially, the bottomline was up by 2.5% QoQ, with margins up by 0.85%.

What to expect?
The management has plans to spend over Rs 20 bn on gas pipelines over a period of three years. The demand of gas from power plants is expected to remain muted and falling gas supplies is another concern.

At a current stock price of Rs 64, the stock is trading at a trailing twelve months price to earnings ratio of 6.8x. The stock price has seen a fall of 20% since the start of the year. Going forward, we believe that the company will face the challenge of falling volumes and muted demand of costlier imported gas. On account of constrained gas availability and in light of the current capacity expansion plans, we believe that the capacity under utilization risk is quite high. Also, there is a risk that transmission tariffs may get revised downwards. Hence, we have a cautious outlook on the stock. We will soon update subscribers with our revised estimates for the stock.

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