Stock Market Result Update on GSPL for 1QFY2012

Stock Market Result Update on GSPL for 1QFY2012 with an Accumulate recommendation and a Target Price of `117 (12 months).

For 1QFY2012, GSPL reported robust set of numbers. The top line grew by 12.9% yoy, while the bottom line grew by 30.7% yoy due to lower depreciation costs and higher other income. We recommend Accumulate on the stock.

Transmission volumes flat, realisation higher: GSPL’s total operating income for the quarter increased by 12.9% yoy to `284cr mainly due to higher transmission volumes and better realisation. Transmission tariff for 1QFY2012 grew by 11.4% yoy to `0.85/scm mainly on account of a marginal improvement in spot volumes. Transmission volumes grew by 1.2% yoy to 36.8mmscmd. EBITDA grew by 10.0% yoy to `262cr, representing OPM of 92.1% compared to 94.6% in 1QFY2011.

PAT surges by 30.7% yoy: During the quarter, depreciation expenses declined by 34.1% to `45cr mainly due to lower depreciation rate. Interest expense grew by 44.4% yoy to `32cr, while other income grew by 95.9% yoy to `11cr. Hence, PAT grew by 30.7% yoy to `137cr.

Outlook and valuation: We believe GSPL is a leveraged play on increasing gas demand in Gujarat (the country’s hydrocarbon capital) from gas-based power plants and rising spot prices. We believe there is a limited downside risk on the tariff front. Further, successful winning of three interstate pipelines provide revenue visibility over the medium term. We have valued GSPL stock at 6.5x FY2013E EBITDA, which provides a target price of `117. Hence, we recommend an Accumulate rating on the stock.