2QFY2013 Result Update | Oil & Gas

November 7, 2012

GUJARAT STATE PETRONET

Performance Highlights
Quarterly performance (Standalone)
(` cr) Total operating income EBITDA EBITDA margin (%) PAT
Source: Company, Angel Research 2QFY2013 2QFY2012 % chg (yoy) 1QFY2013 % chg (qoq)

NEUTRAL
CMP Target Price
Investment Period

`75 -

277 256 92.4 133

281 258 92.0 129

(1.3) (0.9) 34bp 2.7

270 249 92.2 125

2.7 2.8 17bp 6.3

Stock Info Sector Market Cap (` cr) Net debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Oil & Gas 4,203 554 0.9 103/62 203463 10 18902 5760 GSPT.BO GUJS@IN

Gujarat State Petronets (GSPL) 2QFY2013 volumes continued to decline led by declining production from KG D6. The top-line decreased by 1.3%. Maintain Neutral. Transmission volumes continue to slide: GSPLs total operating revenues decreased by 1.3% yoy to `277cr mainly due to decline in transmission volumes, partially offset by higher tariffs. Transmission volumes for 2QFY2013 decreased by 18.8% yoy to 28.6mmscmd mainly due to decline in production from KG D6 basin. Transmission tariff, however, grew by 19.6% yoy to `1.0/scm. Higher other income lifts PAT: The EBIDTA was flat yoy at `256cr mainly due to lower operating expenses. During the quarter, other income rose by 30.1% to `19cr. Also, the tax rate stood decreased to 32.5% in 2QFY2013 compared to 33.6% in 2QFY2012. Hence, the PAT increased by 2.7% yoy to `133cr. Outlook and valuation: We believe GSPL is a leveraged play on increasing gas demand in Gujarat (the countrys hydrocarbon capital) from gas-based power plants and rising spot prices. However, we remain concerned due to declining gas production from the KG-D6 block. Hence, we expect a muted volume growth for GSPL during FY2013-14. Further, we expect average tariff to decline during FY2013-14, compared to FY2012. Hence, although valuations are undemanding for a utility company at 1.3x FY2014 P/BV, we maintain our Neutral rating on the stock due to anticipated decline in earnings over FY2012-14E.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 37.7 24.1 3.2 34.9

Abs. (%) Sensex GSPL

3m 7.4 1.8

1yr 7.6 (26.6)

3yr 17.0 (15.6)

Key financials (Standalone)

Y/E March (` cr) Net sales % chg Net profit % chg OPM (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2011 1,039 4.8 506 23.2 93 10.3 7.2 2.0 31.9 25.5 4.8 5.2

FY2012 1,123 8.1 519 2.6 92 9.2 8.1 1.6 22.4 22.4 4.1 4.5

FY2013E 1,079 (3.9) 493 (5.1) 92 8.8 8.5 1.4 17.9 19.4 3.6 3.9

FY2014E 1,034 (4.2) 474 (3.8) 92 8.4 8.9 1.3 15.0 17.0 3.7 4.0

Bhavesh Chauhan
Tel: 022 - 3935 7800 Ext: 6821 bhaveshu.chauhan@angelbroking.com

Vinay Rachh
Tel: 022- 39357800 Ext: 6841 vinay.rachh@angelbroking.com

Please refer to important disclosures at the end of this report

GSPL | 2QFY2013 Result Update

Exhibit 1: 2QFY2013 performance (Standalone)

(` cr) Total Operating Income Total operating expenditure EBITDA EBITDA Margin (%) Other Income Depreciation Interest PBT before GSEDS GSEDS contribution (30% of PBT) PBT post GSEDS PBT Margin (%) Total Tax % of PBT PAT PAT Margin (%)
Source: Company, Angel Research

2QFY2013 277 21 256 92.4 19 46 32 197 197 70.9 64 32.5 133 47.9

2QFY2012 281 22 258 92.0 14 44 34 195 195 69.4 66 33.7 129 46.0

% chg (yoy) (1.3) (5.5) (0.9) 30.1 5.4 (6.2) 0.8 0.8 (2.7) 2.7

1QFY2013 270 21 249 92.2 15 44 32 188 188 69.8 64 33.7 125 46.2

% chg (qoq) 2.7 0.5 2.8 22.6 5.6 (0.4) 4.3 4.3 0.4 6.3

1HFY2013 547 42 505 92.3 34 90 63 385 385 70.4 127 33.1 258 47.1

1HFY2012 565 45 520 92.1 25 89 66 390 390 69.1 124 31.7 267 47.2

% chg (yoy) (3.2) (5.6) (2.9) 32.4 1.2 (4.1) (1.4) (1.4) 3.0 (3.4)

Transmission volumes continue to slide: GSPLs total operating revenues decreased by 1.3% yoy to `277cr mainly due to decline in transmission volumes, partially offset by higher tariffs. Transmission volumes for 2QFY2013 decreased by 18.8% yoy to 28.6mmscmd mainly due to decline in production from KG D6 basin. Transmission tariff, however, grew by 19.6% yoy to `1.0/scm.

Exhibit 2: Lower gas volumes...

40.0 35.0 30.0 35.6 36.8 35.2 1.20 32.8 31.1 31.1 28.6 1.00 0.80

Exhibit 3: ...led to decline in top-line

290 285 280 275 12.9 11.0 15.0 9.3 10.0 5.0 (1.9) (5.0) (5.0) (10.0) 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 Net Sales Net Sales growth (RHS) (1.3) 0.0

(mmscmd)

(` /scm)

25.0 20.0 15.0 10.0 5.0 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 Gas volumes Average realization (RHS)

265 260 255 250 245 240

0.40 0.20 -

Source: Company, Angel Research

Source: Company, Angel Research

November 7, 2012

(%)

0.60

(` cr)

270 0.0

GSPL | 2QFY2013 Result Update

Higher other income lifts PAT: The EBIDTA was flat yoy to `256cr mainly due to lower operating expenses. During the quarter, the other income rose by 30.1% to `19cr. Also, the tax rate stood decreased to 32.5% in 2QFY2013 compared to 33.6% in 2QFY2012. Hence, the PAT increased by 2.7% yoy to `133cr.

Exhibit 4: Operating performance

270 260 250 100.0 90.0 80.0 70.0 60.0 262 230 258 252 254 249 256 50.0 40.0 30.0 20.0 10.0 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 Operating Profit Operating Margins (RHS)

Exhibit 5: PAT growth trend

155 150 145 140 137 129 129 125 133 135 130 125 120 115 110 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 PAT PAT growth (RHS) 151 50.0 40.0 30.0 20.0

(` cr)

(` cr)

240 230 220 210 200

(%)

126

(10.0) (20.0) (30.0)

Source: Company, Angel Research

Source: Company, Angel Research

November 7, 2012

(%)

10.0

GSPL | 2QFY2013 Result Update

Investment arguments
Tariff decline risk captured in valuations: Transmission tariff is one of the biggest
variables affecting GSPL's valuations. We believe tariffs are likely to fall during FY2013-14. Nevertheless, we believe the anticipated tariff decline is factored in the current price levels.

Volume growth unlikely in the near-term : KG-D6 production has declined from
59mmscmd during 1QFY2011 to 29mmsmd currently. Going forward, we do not expect production from KG-D6 to increase in FY2013-14. Hence, we expect GSPLs gas transmission to remain flat over FY2013-14.

Outlook and valuation

We believe GSPL is a leveraged play on increasing gas demand in Gujarat (the countrys hydrocarbon capital) from gas-based power plants and rising spot prices. However, we remain concerned due to declining gas production from KG-D6 block. Hence, we expect a muted volume growth for GSPL during FY2013-14. Further, we expect tariffs to decline during FY2013-14, compared to FY2012. Hence, although valuations are undemanding for a utility at 1.3x FY2014 P/BV, we maintain our Neutral rating on the stock due to anticipated decline in earnings over FY2012-14.

Exhibit 6: Key assumptions

Particulars Transmission volume (mmscm) Avg. realisations/scm
Source: Company, Angel Research

FY2013E 12,035 0.89

FY2014E 12,035 0.85

Exhibit 7: Angel EPS forecast vs consensus (`)

Angel Forecast FY2013E FY2014E
Source: Company, Angel Research

Bloomberg Consensus

Variation (%) 13.8 6.3

8.8 8.4

7.7 7.9

November 7, 2012

GSPL | 2QFY2013 Result Update

Exhibit 8: Recommendation summary

Company GAIL IGL GSPL Petronet CMP (`) 366 265 75 171 TP (`) - Neutral - Neutral - Neutral 183 Accum. Reco. Mcap (` cr) 45,880 3,525 4,203 11,321 Upside (%) 7 P/E (x) FY13E 10.8 10.9 8.5 11.3 FY14E 10.4 10.3 8.9 11.2 P/BV (x) FY13E 1.9 2.5 1.4 2.9 FY14E 1.6 2.1 1.3 2.4 EV/EBITDA (x) FY13E 5.9 5.4 3.9 6.9 FY14E 4.7 4.6 4.0 6.1 RoE (%) FY13E 18.5 25.0 17.9 28.4 FY14E 16.8 22.1 15.0 23.1 RoCE (%) FY13E 19.8 27.8 19.4 23.9 FY14E 18.1 26.7 17.0 21.7

Source: Angel Research

Exhibit 9: One-year forward P/E

250 200

Share price (`)

150 100 50 0

Dec-11

Apr-10

Jul-11

Nov-09

Sep-10

Feb-11

7x
Source: Company, Angel Research

10x

13x

16x

May-12

19x

Company background
GSPL is a pure natural gas transmission company. GSPL owns and operates a gas transmission network in Gujarat totaling to approximately 1,874km. The company transports gas to more than 31 customers, including refineries, fertilizer plants, petrochemical plants etc. During FY2012, it transported an average of 34mmscmd of gas.

November 7, 2012

Oct-12

Jun-09

GSPL | 2QFY2013 Result Update

Profit & loss statement (Standalone)

Y/E March (` cr) Total operating income % chg Total Expenditure O& M Expenditure Staff expenditure Other operating expenditure EBITDA % chg (% of Net Sales) Depreciation and amortization EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Prior period items Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of asso. Less: Minority interest (MI) PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E 487 16.7 63 23 11 29 425 16.6 87.2 170 254 26.4 52.2 87 24 12.7 (0) 192 28.6 192 68 35.4 124 124 124 24.0 25.4 2.2 2.2 23.5 992 103.5 62 28 10 24 930 118.8 93.7 236 693 172.4 69.9 94 25 4.0 3 624 225.5 624 213 34.1 411 411 411 231.9 41.4 7.4 7.4 235.1 1,039 4.8 77 36 15 26 962 3.5 92.6 130 832 20.0 80.1 96 29 3.8 765 22.6 765 259 33.8 506 506 506 23.2 48.7 10.3 10.3 40.3 1,123 8.1 94 44 20 30 1,030 7.0 91.7 182 848 1.9 75.5 130 49 6.4 766 0.2 766 247 32.2 519 519 519 2.6 46.2 9.2 9.2 (10.5) 1,079 (3.9) 89 43 18 28 991 (3.8) 91.8 180 810 (4.4) 75.0 127 63 8.5 747 (2.5) 747 254 34.0 493 493 493 (5.1) 45.7 8.8 8.8 (5.1) 1,034 (4.2) 85 41 17 27 949 (4.2) 91.9 182 766 (5.4) 74.2 114 65 9.0 1.0 717 (4.0) 717 243 33.9 474 474 474 (3.8) 45.9 8.4 8.4 (4.2)

November 7, 2012

GSPL | 2QFY2013 Result Update

Balance sheet (Standalone)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Total Loans Deferred Tax Liability Other Long Term Liabilities Long Term Provisions Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Long Term Loans and Adv. Other Non-current assets Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 2,421 653 1,769 645 36 562 97 302 162 533 28 3.3 2,481 3,325 889 2,437 539 67 755 174 360 221 833 (78) 0.3 2,964 4,194 1,012 3,182 334 148 93 2 438 239 51 149 617 (178) 3,569 4,322 1,182 3,140 443 171 85 8 727 542 26 159 576 151 3,997 4,815 1,363 3,452 450 171 85 8 1,302 1,129 26 148 1,111 191 4,357 5,315 1,545 3,770 450 171 85 8 1,282 1,115 26 142 1,084 198 4,681 562 653 1,215 1,151 114 2,481 562 1,001 1,564 1,260 141 2,964 563 1,515 2,078 1,218 264 6 2 3,569 563 1,998 2,561 1,095 324 13 3 3,997 563 2,396 2,958 998 384 13 3 4,357 563 2,763 3,325 898 441 13 3 4,681 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

November 7, 2012

GSPL | 2QFY2013 Result Update

Cash flow statement (Standalone)

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2009 FY2010 FY2011 191 170 (149) (23) (53) 136 (458) 23 (435) 0 185 (49) 3 139 (159) 257 97 627 236 184 (13) (187) 847 (798) (31) 13 (817) 0 109 (66) 3 46 77 97 174 760 130 (212) 86 (166) 597 (569) (10) 17 (562) 0 222 (66) (127) 30 30 174 239 FY2012 766 182 (92) 98 (162) 792 (231) 44 (187) (401) (82) (65) (155) (303) 303 239 542 FY2013E FY2014E 747 180 547 (13) (194) 1,266 (500) 13 (487) (94) (98) (192) 587 542 1,129 715 182 (21) (13) (186) 678 (500) 13 (487) (100) (105) (205) (14) 1,129 1,115

November 7, 2012

GSPL | 2QFY2013 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) RoIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating RoE Returns (%) RoCE (Pre-tax) Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT/Int.) 0.9 2.5 2.9 0.7 1.2 7.4 0.5 1.0 8.7 0.2 0.5 6.5 (0.0) (0.1) 6.4 (0.1) (0.2) 6.7 0.2 50 36 2,316 (107) 0.3 41 24 2,519 (59) 0.3 34 25 2,445 (120) 0.3 21 24 2,064 (133) 0.2 22 26 3,328 (225) 0.2 22 25 4,719 (327) 10.9 16.9 10.5 25.5 35.7 29.8 25.5 33.1 31.9 22.4 29.8 22.4 19.4 29.7 17.9 17.0 27.6 15.0 52.2 64.7 0.2 7.7 5.3 1.3 8.6 69.9 66.0 0.4 18.1 5.1 1.0 30.9 87.2 66.0 0.4 20.3 5.1 0.6 37.4 76.0 66.0 0.3 17.3 7.4 0.3 32.4 75.6 66.0 0.3 16.9 8.0 0.0 33.6 74.7 66.0 0.3 15.6 7.9 (0.1) 32.3 2.2 2.2 5.2 0.7 21.5 7.4 7.4 11.6 1.0 27.8 10.3 10.3 12.6 1.0 36.9 9.2 9.2 12.5 1.3 45.5 8.8 8.8 12.0 1.5 52.6 8.4 8.4 11.6 1.6 59.1 34.1 14.3 3.5 1.0 10.7 12.3 2.1 10.2 6.5 2.7 1.3 5.3 5.6 1.8 7.2 5.9 2.0 1.3 4.8 5.2 1.4 8.1 6.0 1.6 1.7 4.1 4.5 1.1 8.5 6.2 1.4 2.0 3.6 3.9 0.9 8.9 6.4 1.3 2.1 3.7 4.0 0.8 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

November 7, 2012

GSPL | 2QFY2013 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

GSPL No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

November 7, 2012

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