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GSPL: A lackluster quarter - Views on News from Equitymaster

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GSPL: A lackluster quarter
Nov 21, 2013

Gujarat State Petronet Ltd (GSPL) has announced its results for second quarter of the fiscal year 2013-2014 (2QFY14). The net sales have been flat on a year on year (YoY) basis while net profits for the quarter grew by declined by 14.1% YoY

Performance summary
  • Revenues for the quarter registered a flattish growth of 0.1% YoY during the quarter. For the half year, the revenues were up by 4.9% YoY.
  • Operating profits during the quarter declined by 1.9% YoY with margins at 90.6% as compared to 92.4 % in 2QFY13. For the half year, the operating profits were up by 3.2% YoY with operating margins at 90.8%, as compared to 92.3% in 1HFY13.
  • Net profits for the quarter declined by 14.1% YoY with net profit margins at 41.1%, as compared to a net profit margin of 47.9% in 2QFY13. For the half year, the net profits declined by 6.7% YoY, with net profit margins at 41.9% as compared to 47.1% in 1HFY13.

Standalone financial summary
(Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Sales 2,772 2,774 0.1% 5,473 5,742 4.9%
Expenditure 212 261 23.5% 422 531 25.7%
Operating profit (EBDITA) 2,561 2,513 -1.9% 5,050 5,211 3.2%
EBDITA margin (%) 92.4% 90.6%   92.3% 90.8%  
Other income 185 136 -26.6% 337 268 -20.5%
Interest (net) 316 367 16.3% 633 747 18.0%
Depreciation 464 470 1.2% 903 927 2.7%
Profit before tax 1,966 1,812 -7.9% 3,851 3,804 -1.2%
Pretax margin (%) 70.9% 65.3%   70.4% 66.2%  
Tax 638 671 5.2% 1274 1401 9.9%
Profit after tax/(loss) 1,328 1,141 -14.1% 2,577 2,403 -6.7%
Net profit margin 47.9% 41.1%   47.1% 41.9%  
No. of shares (m)         563  
Diluted earnings per share (Rs)*         9.3  
Price to earnings ratio (x)**         6.5  
**On trailing 12 months basis

What has driven performance in 2QFY14?
  • The net sales remained almost flat on a year on year basis. While the volume offtake during the quarter declined by around 26% YoY (down 3.4% QoQ), an increase in the tariffs (up 37.5% YoY) kept sales almost at the same level as in 2QFY13. On a sequential basis, the tariffs also declined by 7.3% QoQ. For the half year, the gas volumes declined by 27.5% YoY. However, an increase in the realizations led to a growth of 4.9% YoY in the net sales.

  • The operating profit margins during the quarter slipped to 90.6% from 92.4% in 2QFY13, mainly due to the decline in the volumes and higher operation and maintenance expenses. On a sequential basis also, the margins were down due to decline in the volumes and lower realizations.

  • The net profit for the quarter declined by 14.1% YoY, at a rate higher than the decline in the operating profits. This was on account of higher effective tax rate (37.1% vs. 32.5% in 2QFY13), fall in the other income (down 26.6% YoY) and increase in the depreciation and other expenses during the quarter.
What to expect?
Apart from the lower domestic volumes, an increase in the imported gas prices led to the slowdown in the gas demand during the quarter. We expect the volumes to remain low and as such the company suffers from capacity underutilization risks and perils of ship or pay contracts. Despite higher tariffs on an annual basis, the company has registered a loss in the operating profits. However, most of these concerns have been factored in the stock prices. At the current price of Rs 60, the stock is trading at price to earnings ratio of 5.4 times with respect to the earnings estimates in FY16. 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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