[T.S.R:16070] GSPL: Looking Beyond Gujarat (Nomura)

GSPL has a big advantage in being in Gujarat, India's most industrialised state, which consumes ~40% of India's gas. After 115% growth in volume in FY10, we expect moderate but still significant growth of 21% in FY11F and 14% in FY12F.   While the Gujarat story is promising and intact, a favourable outcome in bidding for 3 cross-country pipelines could be a near-term trigger. BUY reiterated.   Catalysts Results of bidding for new cross-country pipelines and near-term volume growth are key factors to watch.   Anchor themes   India has seen sharp growth in gas availability over the past year. GSPL has been a key beneficiary. After Gujarat, where growth continues, plans are under way to expand beyond Gujarat. Success in bidding for EOI pipelines is a key trigger.   Spreading lines – getting bigger in Gujarat   GSPL is now present in 16 of 26 districts of Gujarat, with its ~1,666kms of gas grid — and that is not all. It plans to expand further by constructing ~1,100kms of pipelines in the next two to three years.   After sharp growth in volume last year, volume growth is likely to moderate. Still, we expect significant volume growth as new pipelines are completed and new customers are added.   Cross-country pipelines – possible bonus GSPL's consortium with oil marketing companies (GSPL – 52%) has emerged as the only player to have submitted to the PNGRB bids for all three long-distance pipelines. We think a favourable outcome in bidding could be a near-term trigger. Decisions are expected in the coming weeks.   Regulatory concerns eased, new tariffs to follow Since notification of section-16 of the PNGRB act, the authorisation process for GSPL's gas grid is on a fast track. GSPL has submitted for 2,425kms of network authorisation. Tariff fixation by the regulator will be the next step. We continue to believe GSPL's existing average tariffs are unlikely to fall, as these are distance-based (as required in PNGRB regulations) and GSPL is incurring large capex to augment its network.   We continue to prefer GSPL to GAIL Our DCF based PT is INR150/share. We value GSPL's 37% stake in GSPC Gas and 14% stake in Sabarmati Gas only at book value. We continue to prefer GSPL to GAIL. GSPL trades at 6.6x FY12F EV/EBITDA, compared with 10x for GAIL. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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