Q4FY2011Update Sector: Natural Gas BSE Sensex: 18,045

RESEARCH

GUJARAT STATE PETRONET LTD.

FLAT VOLUME FOR SIXTH CONSECUTIVE QUARTER Gujarat State Petronets (GSPL) Q4FY11 result was inline with our expectations as net sales decreased slightly by 1.1%YoY to Rs2.5bn (PINCe Rs2.5bn) due to flat volumes and tariff. OPM decreased marginally by 190bps to 90%. However, reported net profit surged by 39.7% to Rs1.5bn led by change in depreciation policy. Adjusted for depreciation impact, net profit declined by 2.9% to Rs1.0bn (PINCe Rs1.1bn). Flat quarterly performance: Volume for Q4FY11 was reported at 35.6mmscmd (-2.4% YoY and -1.6%QoQ). Tariff remained flat YoY at Rs797/kscm and de-grew 6.1% sequentially. For FY11, tariff decreased by 6.5% to Rs799/kscm. For FY12, our assumption for tariff is Rs750/kscm as per management guidance. Net profit driven by lower depreciation: GSPL reported -ve depreciation of Rs173mn in Q4FY11 (Q4FY10 Rs632mn). This includes retrospective adjustment of Rs274mn on account of change in depreciation treatment of RoU Land Compensation and RoW Payments and Rs436mn due to cut in depreciation rate from 4.45% to 3.17% SLM (30 year life). In Q3FY11, GSPL accounted for change in depreciation rate from 8.33% (12 year life) to 4.75%. Long-term positive outlook: PNGRB has authorised GSPL for construction of MallavaramBhilwara (1611 km), MehsanaBhatinda (1688 km) and BhatindaJammu (512 km) pipelines.Cross-country expansion along with robust demand in Gujarat should lead to additional volumes for GSPL. Increasing LNG terminals and ongoing exploration activity augur well for increasing gas supply in future. VALUATIONS AND RECOMMENDATION We have decreased transmission volumes for FY12 and FY13 on the back of slow ramp up in RIL KG D6 gas. Consequently, net profit estimate for FY12 and FY13 decreased by 5.4% and 9.1% respectively. At the CMP of Rs97, GSPL is trading at P/E of 10.2 and EV/EBITDA of 6.2x for FY13 estimates. We are positive on the long term prospects of GSPL with their expansion and increasing gas supply in India in future. We maintain a BUY recommendation with a reduced target price of Rs120 based on DCF. We have not yet considered the upside from the three cross country pipelines recently awarded to GSPL in our target price. We will include it post clarity related to capex and pipeline tariff.
Satish Mishra

BUY CMP Rs97 TP Rs120

27 May 2011

+91-22-6618 6488

satish.mishra@pinc.co.in Urvashi Biyani +91-22-6618 6334

urvashi.biyani@pinc.co.in

QUARTERLY SNAPSHOT

(Rs mn)

Quarter Ended Sep-10 Dec-10 Mar-11

Net Sales YoY Gr (%) Op .Profits OPM (%) Net Profit YoY Gr. (%)

2,545 (0.1) 2,336 (2.9) 915 (16.8)

2,795 4.1 2,623 3.7 1,595 38.2

2,551 (1.1) 2,297 (3.1) 1,506 39.7

Result Review

STOCK DATA
Market Cap Book Value per share Eq Shares O/S (F.V. Rs10) Free Float Avg Traded Value (6 mnths) 52 week High/Low Bloomberg Code Reuters Code Rs54.6bn. Rs35.7 562.4mn. 62.3% Rs157mn Rs128/88 GUJS IN GSPT.BO

PERFORMANCE (%)
Absolute Relative 1M (0.2) 5.5 3M 5.8 6.6 12M 10.1 (0.2)

KEY FINANCIALS
KEY FINANCIALS Net Sales YoY Gr. (%) EBITDA EBITDA Margin (%) Adj Net Profit YoY Gr. (%) FY09 4,875 16.7 4,245 87.1 1,234 23.5 2.2 11.9 10.5 44.2 13.3 15.3 FY10 9,920 103.5 9,315 93.9 4,138 235.3 7.4 26.4 29.8 13.2 6.6 7.0 FY11P 10,391 4.8 9,619 92.6 5,064 22.4 9.0 25.6 28.4 10.8 6.4 7.0 FY12E 10,284 (1.0) 9,428 91.7 4,718 (6.8) 8.4 20.7 21.4 11.6 6.4 7.0

(Rs mn)

FY13E 11,567 12.5 10,603 91.7 5,326 12.9 9.5 20.9 20.3 10.2 5.7 6.2
1

RELATIVE PERFORMANCE
GSPL 135 110 85 60 May -10 BSE (Rebased)

KEY RATIOS
Dil. EPS (Rs) ROCE (%) RoE (%) PER (x ) EV/Net sales (x ) EV/EBITDA (x )

Aug-10

Nov -10

Feb-11

May -11

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RESEARCH
Gujarat State Petronet Ltd.

Financial Table
Rs m n Net Sales EBITDA EBITDA Margins % Other Income Interest Depreciation PBT Tax (%) PAT EPS Mar-10 2,579 2,371 91.9 121 225 632 1,634 34.0 1,079 1.9 Mar-11 2,551 2,297 90.0 97 236 (173) 2,331 35.4 1,506 2.7 YoY (%) (1.1) (3.1) (19.8) 4.9 (127.4) 42.7 39.7 39.5 Dec-10 2,795 2,623 93.8 54 259 25 2,393 33.4 1,595 2.8 QoQ (%) (8.7) (12.4) 80.4 (8.8) (781.0) (2.6) (5.5) (5.6) FY10 9,920 9,287 93.6 247 938 2,365 6,231 34.2 4,138 7.4 FY11 10,391 9,619 92.6 291 961 1,299 7,650 33.8 5,064 9.0 YoY (%) 4.8 3.6 17.4 2.4 (45.1) 22.8 22.4 22.3

Volume and Tariff assumption

FY09 Volume (mmscmd) Tariff (Rs/ kscm), RHS 14.9 898 FY10 32.0 850 FY11P 35.6 799 FY12E 37.6 750 FY13E 42.3 750 FY14E 52.0 750 FY15E 59.3 750

DCF Valuation
(Rs mn) PAT Depreciation Change in Working Capital Capex Additional Borrowing FCFE Terminal Value Present Value of FCFE Total Present Value No of shares (mn) Value/ Share (Rs) 2,138 67,635 563 120 779 4,946 FY09 1,234 1,705 (1,752) (4,579) 1,849 (1,543) FY10 4,138 2,365 2,973 (9,091) 1,086 1,470 FY11P 5,064 1,299 (2,497) (5,803) 2,239 302 FY12E 4,718 1,575 1,770 (5,925) 2,138 FY13E 5,326 1,810 49 (6,500) 200 885 FY14E 6,824 2,009 250 (2,000) (700) 6,383 FY15E 7,974 2,137 66 (2,000) 8,176 79,450 59,772

Flat volume and declining tariff

Gas Volume (mmscmd) 60 45 30 15 0 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Av g tariff (Rs/kscm) 1000 900 800 700 600

satish.mishra@pinc.co.in

RESEARCH

Gujarat State Petronet Ltd.

Year Ended March (Figures in Rs mn)

INCOME STATEMENT Volume (mmscmd) Tariff (Rs/kscm) Net sales Growth (%) EBITDA EBITDA (%) Growth (%) Other income Depreciation EBIT Interest paid PBT Tax prov ision Net Profit Growth (%) Dil. EPS (Rs) Dil. EPS Growth (%) Book Value (Rs)

FY09 14.9 898 4,875 16.7 4,245 87.1 16.5 243 1,705 2,783 870 1,914 531 1,234 23.5 2.2 23.5 21.6

FY10 32.0 850 9,920 103.5 9,315 93.9 119.4 247 2,365 7,198 929 6,269 1,870 4,138 235.3 7.4 235.3 27.8

FY11P 35.6 799 10,391 4.8 9,619 92.6 3.3 291 1,299 8,611 961 7,650 1,351 5,064 22.4 9.0 22.4 35.7

FY12E 37.6 750 10,284 (1.0) 9,428 91.7 (2.0) 334 1,575 8,187 1,038 7,148 2,430 4,718 (6.8) 8.4 (6.8) 42.6

FY13E 42.3 750 11,567 12.5 10,603 91.7 12.5 351 1,810 9,145 1,075 8,069 2,744 5,326 12.9 9.5 12.9 50.7

CASH FLOW STATEMENT Pre-tax profit Depreciation Total tax paid Chg in w orking capital Other Adjustments Cash flow from oper. (a) Capital ex penditure Chg in inv estments Other inv esting activ ities Cash flow from inv. (b) Free cash flow (a+b) Equity raised Debt issued Div idend (incl. tax ) Other financing activ ities Others Cash flow from fin. (c) Net chg in cash (a+b+c)

FY09 1,914 1,706 (500) (1,752) 668 2,036 (4,579) 297 (4,283) (2,246) 2 1,849 (329) (870) 652 (1,594)

FY10 6,269 2,365 (1,870) 2,973 681 10,418 (9,091) (310) 247 (9,154) 1,264 3 1,086 (658) (929) (498) 767

FY11P 7,650 1,299 (1,351) (2,497) 669 5,771 (5,803) (100) 291 (5,613) 158 1 2,239 (658) (961) 622 780

FY12E 7,148 1,575 (2,430) 1,770 1,075 9,138 (5,925) 8 334 (5,583) 3,555 (790) (1,409) (2,199) 1,356

FY13E 8,069 1,810 (2,744) 49 1,078 8,262 (6,500) (94) 351 (6,244) 2,018 200 (790) (1,428) (2,018) 0

BALANCE SHEET Equity capital Reserv es & Surplus Shareholders' funds Total Debt Deferred tax liabiity Capital Employed Net fix ed assets Cash & cash Eq. Net Other Current Assets Inv estments Misc. Ex p. Total assets

FY09 5,621 6,531 12,152 11,509 1,144 24,805 24,132 975 (691) 356 33 24,805

FY10 5,624 10,014 15,638 12,595 1,405 29,639 30,859 1,742 (3,631) 666 3 29,639

FY11P 5,626 14,424 20,066 14,835 2,641 37,541 35,363 2,390 (980) 766 2 37,541

FY12E 5,626 18,352 23,994 14,835 2,641 41,469 39,094 3,745 (2,131) 758 2 41,469

FY13E 5,626 22,888 28,529 15,035 2,641 46,205 43,784 3,746 (2,180) 852 2 46,205

KEY RATIOS EBITDA Margin (%) Net profit margin (%) Div idend Yield (%) Net Debt/ Equity (x ) Working capital cy cle (day s) Asset turnov er ratio (x ) ROCE (%) RoE (%) EV/Sales (x ) EV/EBITDA (x ) PER (x ) Price/ Book (x )

FY09 87.1 25.3 0.8 0.9 (170) 0.2 11.9 10.5 13.3 15.3 44.2 4.5

FY10 93.9 41.7 1.0 0.7 (143) 0.3 26.4 29.8 6.6 7.0 13.2 3.5

FY11P 92.6 48.7 1.0 0.6 (92) 0.3 25.6 28.4 6.4 7.0 10.8 2.7

FY12E 91.7 45.9 1.2 0.5 (96) 0.2 20.7 21.4 6.4 7.0 11.6 2.3

FY13E 91.7 46.0 1.2 0.4 (90) 0.3 20.9 20.3 5.7 6.2 10.2 1.9

1-year forward P/E Band

1-year forward EV/EBITDA

160
16x

100,000
9x 8x 7x 6x 5x

120

14x 12x 10x 8x

75,000

80 40

50,000

25,000

Apr-06 Jul-07 Oct-08 Jan-10 May -11

Apr-06 Jul-07 Oct-08 Jan-10 May -11

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RESEARCH

T E A M
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Equities Equities Equities Derivatives Derivatives

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DEALING
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