Volume concerns may be behind for GSPL

Gujarat State Petronet Ltd (GSPL) reported subdued March quarter performance with declining gas sales volumes. The rise in spot gas prices during January and February had impacted gas volumes. Among segments, weak demand from the power sector also impacted the performance.

The company during the March quarter saw transmission volumes at 33.84 mmscmd (million metric standard cubic metres per day). These were down 8% year-on-year and 14% sequentially. The implied tariff as per analysts stood at around ₹1,277/mscm (million standard cubic metre). January and February had seen a spurt in spot LNG (liquefied natural gas) prices to about $20-30/MMBtu. This impacted overall demand. The demand from the power sector was down 48% sequentially as per analysts that hurt the company. Power sector volumes contributions to overall volumes declined to 14% in Q4, compared with 23% in Q2 and Q3 and 31% in Q1FY21.

While March quarter was weak, the ongoing June quarter, too, has seen some impact of lockdown impacting demand to some impact. However, the good news is that spot LNG price has declined to almost $10/mmscmd levels. Also, the power demand is to have picked up significantly. The worst thereby may be behind feel analysts.

Analysts at Motilal Oswal Financial Services Ltd said that “as per our interaction, current volumes stand 36mmscmd. GSPL expects a revival of 1-2mmsmcd in volumes over the next couple of days from City Gas Distribution (CGD) as lockdown restrictions are eased. MOFSL, though, may have reduced FY22 volumes estimates to 40mmscmd (from 42mmscmd earlier), however, expect them to jump to 44mmscmd in FY23. The company is likely to benefit from upcoming LNG terminals in Gujarat, increased demand due to the focus on reducing industrial pollution. The commissioning of the Mehsana-Bathinda pipeline, though, may have been delayed due to farmers protests and covid spread, nevertheless, will accrue benefits in FY23.

The company is likely to gain from strong gas demand in the country and also dependency on imported LNG to bridge the demand-supply gap.

Analysts at ICICI Securities said, “GSPL’s transmission volumes witnessed degrowth (inQ4) on account of a fall in demand from the power sector. However, the CGD segment has seen a sharp rebound in demand as industrial PNG demand remained robust and CNG demand recovered to normal in unlock phases.”

GSPL is also the holding company for Gujarat Gas Ltd. Gujarat Gas is seeing strong prospects with strong industrial demand and rising compressed natural gas or CNG sales with expanding outlets.

Analysts at MOFSL say that investments in Gujarat Gas Ltd and Sabarmati Gas, at a 25% holding discount, itself offer a valuation of ₹268/share.

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