With volume growth concerns behind, GSPL’s outlook improves

With volume growth concerns behind, GSPL’s outlook improves

GSPL expects a revival of 1-2mmsmcd in volumes over the next couple of days from City Gas Distribution as lockdown restrictions are eased

NEW DELHI : The March-quarter performance of Gujarat State Petronet Ltd (GSPL) was subdued with declining gas sales volumes. A rise in spot gas prices in January and February weighed on gas volumes.

The company’s Q4 transmission volume at 33.84 mmscmd (million metric standard cubic metres per day) declined 8% year-on-year (y-o-y) and 14% sequentially.

January and February saw an unexpected spurt in spot prices of liquified natural gas (LNG) to $20-30/MMBtu. This impacted overall demand. Demand from the power sector was down 48% sequentially, analysts said. With that, the contribution of the power sector to overall volumes declined from 23% in Q3FY21 to 14% in Q4FY21.

Consequently, total revenues from operations in a standalone basis at ₹465.04 crore fell more than 20% y-o-y and net profit declined 9% y-o-y.

After a weak March quarter, there has been little respite, given the impact of covid-led lockdowns in the June quarter.

However, investors in the stock can seek comfort from the fact that the spot LNG price has softened to almost $10/mmscmd levels, analysts said.

Also, power demand has significantly improved. So, analysts are of the view that the worst may be behind.

“As per our interaction, current volumes stand at 36 mmscmd. GSPL expects a revival of 1-2 mmsmcd in volumes over the next couple of days from city gas distribution (CGD) as lockdown restrictions are eased,” analysts at Motilal Oswal Financial Services said.

The domestic brokerage house has reduced FY22 volume estimates to 40 mmscmd from 42 mmscmd earlier. However, it expects volume growth to improve to 44 mmscmd in FY23.

The company is likely to benefit from upcoming LNG terminals in Gujarat and increased demand due to the focus on reducing industrial pollution.

The commissioning of the Mehsana-Bhatinda pipeline may have been delayed due to the farmers’ protest and the surge in covid-19 cases, but it will accrue benefits in 2HFY22 and FY23. Furthermore, the company may gain from strong gas demand in the country and the rising use of imported LNG to bridge the demand-supply gap.

“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,” said analysts at ICICI Securities Ltd.

GSPL is also a parent for Gujarat Gas Ltd, which is seeing strong growth led by rising industrial demand and compressed natural gas or CNG sales, helped by the increasing number of outlets. Going by the estimates of analysts at Motilal Oswal, investments in Gujarat Gas Ltd and Sabarmati Gas, at a 25% holding discount, itself offer a valuation of ₹268/share.

Meanwhile, the stock is up more than 7% in the past two trading sessions.


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