With domestic volume declines likely to continue in the near term and not much new incremental LNG re-gas capacity available in Gujarat, volume growth outlook looks muted in the near term, said Nomura in report on GSPL’s Q4 performance

GSPL’s (Gujarat State Petronet) reported PAT of Rs1.61 billion for 4QFY13 (up 25% y-o-y, 36% q-o-q) was sharply ahead of Nomura’s forecast (Rs1.05 billion) and Bloomberg consensus (Rs1.07 billion). “Contrary to our and street view, the overall impact of tariff implementation order has been positive,” said Nomura Equity Research in its report on the company’s performance.
 

GSPL has applied the tariff order from 27 July 2012, and the net revenue gain of around Rs1 billion has been booked in 4Q.While the tariff order impact is positive, Nomura was surprised by the sharp decline in volumes. 4Q transmission volumes at 22.2mmscmd (its estimate: 25mmscmd) declined sharply by 29% y-o-y and 19% q-o-q. After reaching a peak in 1QFY12, volumes have been declining consistently as domestic supply keeps declining. But, now even demand is getting weaker. From the peak the volumes have declined 40%, and the near-term outlook remains weak, the brokerage report said.

GSPL has applied the Petroleum and Natural Gas Regulatory Board’s (PNGRB) tariff order (initial order on 11September 2012, zonal tariff on 19 February 2012). Rather than applying the order retroactively from 20 November 2008 (as demanded by PNGRB), GSPL has applied the tariff order from 27 July 2012 (the date of authorisation of network) in accordance with the interim order by the appellate tribunal (APTEL). GSPL has also started to book expenses for system use gas (SUG) from mid-February. SUG was hitherto not charged but taken in kind from customers. SUG charge expense is a key reason for the sharp rise in O&M expenses by 66% y-o-y and 52% q-o-q, according to Nomura.

On both retroactive implementation and SUG charges, and on several other aspects of the tariff order, GSPL has already challenged PNGRB in the appellate tribunal where the hearings are ongoing. Nomura believes PNGRB is on a weak footing (especially on demanding retroactive tariff implementation) and an early APTEL decision would bring clarity.
 

4Q agerage transmission volumes at 22.2mmscmd declined sharply by 29% y-o-y, and 19% q-o-q. From peak levels of 36.8mmscmd in 1QFY12, volumes have declined around 40% due to sharp decline in domestic gas availability. The company attributes the recent sharp volume decline to weak overall gas demand across sectors and very high LNG prices in Jan /Feb 2013. Current volumes also remain around 22mmscmd. With domestic volume declines likely to continue in the near term and not much new incremental LNG re-gas capacity available in Gujarat, volume growth outlook looks muted in the near term.