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GSPL: Fall in gas volumes drag performance
Aug 17, 2012

Gujarat State Petronet Limited (GSPL) has announced its results for the first quarter of financial year 2012-13 (1QFY13). During the quarter, the company has reported a 6.1% YoY (year on year) decline in the topline and 9.1% YoY decline in the bottomline on a standalone basis. Here is our analysis of the results.

Performance summary
  • The company's total income from operations registered a decline of 6.1% YoY (down 3.1% on a quarter on quarter (QoQ) basis).
  • The operating profits for the quarter registered a decline of 6.1% YoY (down 2.1% QoQ), with margins at 92.2%, same as margins in 1QFY12.
  • The company reported a 9.1% YoY (down 3.4% QoQ) decline in the bottomline during the quarter. The net profit margins during the quarter stood at 46.2% versus 47.8% in 1QFY12.

Standalone financial snapshot
(Rs m) 1QFY12 1QFY13 Change
Total income from operations 2,876 2,700 -6.1%
Total expenses 224 211 -5.8%
Operating profits 2,652 2,490 -6.1%
Operating profit/EBITDA margins (%) 92.2% 92.2%  
Other income 79 151 92.6%
Interest expenses 324 317 -2.0%
Depreciation 453 439 -2.9%
Profit before tax 1,954 1,884 -3.6%
Profit before tax margin (%) 68.0% 69.8%  
Taxes 581 636 9.4%
Net income 1,374 1,248 -9.1%
Net income margins (%) 47.8% 46.2%  
No. of shares (m)   563  
Diluted earnings per share (Rs)*   9.1  
P/E ratio(x)*   7.9  
* On a trailing 12-months basis

What has driven performance in 1QFY13?
  • The company registered a 6.1% YoY decline in the revenues during the quarter. This was mainly due to a sharp decline in the gas volumes transported (2833 million standard cubic metres (mscm), down 15.3% YoY, up 0.1% QoQ) due to fall in domestic gas production. The decline in the topline was arrested to some extent due to an 11.0% YoY increase in transmission tariffs . However, on a sequential basis, the tariffs declined by 5.6% QoQ.

  • The operating profits for the quarter registered a decline of 6.1% YoY. This was mainly on account of a weak performance at the topline level. The overall operating costs (as a % of sales) remained the same on a YoY basis. The EBIT/scm stood at Rs 0.73 per scm for the quarter, up 9.1% YoY, down 7.7% QoQ.

  • The company registered a 9.1% YoY decline in the bottomline. Both interest expenses and depreciation costs (as a % of sales) registered an increase on a YoY basis. Besides, a higher effective tax rate on a YoY basis contributed to the decline in the net income. The net profit margins for the quarter stood at 46.2% as compared to 47.8% in 1QFY12.

    Cost break-up...
    (Rs m) 1QFY12 1QFY13 Change
    Operation and Maintenance expenses 109 118 8.6%
    % sales 3.8% 4.4%  
    Staff cost 55 44 -20.4%
    % sales 1.9% 1.6%  
    Other expenditure 60 49 -18.2%
    % sales 2.1% 1.8%  
    Total cost 224 211 -5.8%
    % sales 7.8% 7.8%  

What to expect?
The shortage of domestic gas supplies and hence the gas transportation volumes is the key concern for decline in the topline. While the company has been substituting falling domestic gas supplies through spot LNG, doing so in the future will not be that easy as LNG gas terminals are already operating at more than 100% of their capacities. Also, there is a risk that transmission tariffs may get revised downwards. Amidst all these concerns, the company has plans for pipeline expansion which are likely to lead to capacity underutilization. At the current stock price, the stock is trading at a 12 months trailing price to earnings multiple of 7.9x. We suggest our investors to Sell the stock on account of fundamental issues that we have discussed above.

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