Gujarat State Petronet (GSPL)-Best Leverage On Natural Gas

GSPL will see a doubling in pipeline capacities and quadrupling of Revenues over the next 4 years. The stock should become a core infrastructure play for all book runners.

High Operating leverage in the high gas demand state of Gujarat, good project execution record, visibility on long term gas supplies and stakes in parent GSPC groups City Gas Projects make GSPL the most attractive non Exploration and Production play on the emerging natural gas theme in India.

The volume growth potential of GSPL's core transmission business is immense as gas from the Deen Dayal and Dhirubhai fields gushes out beginning April-September 08 and continues to rise beyond 2010-11 when the Ongc offshore and GSPCs Deen Dayal fields also begin producing Natural Gas from Andhra Offshore. There will be minimal regulatory impact on pricing of gas transportation as GSPL has been set up as an open carrier sans pricing controls of the MoPNG.

Stock Triggers

Additional Gas Supplies of 4.8 million squared cubic meters per day from the Gujarat Offshore Panna-Mukta-Tapti gas fields in April 2008; to the existing 1100 kms of gas pipelines in Gujarat another 1100 kms costing over Rs 3300 crore will be added in CY 2008, additional gas supplies ranging from 6.9 million squared cubic meters per day from Reliance and rising to a peak of 70 million squared cubic meters per day from Second half FY 2008, Additional Gas supplies from the GSPC owned Deen Dayal fields from early 2010 and successful execution of the City Gas Distribution projects of GSPC group.

Gujarat-The Biggest Natural Gas Consumer

Natural Gas Demand from the State of Gujarat for various dedicated Power, Fertilisers, Steel and civil distribution was estimated at 54 mn squared cubic meters per day and this demand will rise to 95 mmscmd by 2010.

GSPL currently moves 18 mmscmd of gas per day, and the current gas infrastructure under its belt allows volume expansion to 40 mmscmd without much incremental investment. Add to this another doubling in pipeline capacity and theoretically GSPL would be able to push through over 80 mmscmd of Natural Gas as an open carrier.

There are multiple landing points at Hazira and Uran where competing gas networks of Reliance and Gail can land gas for movement within Gujarat. As already announced Reliance would utilise the GSPL network to move the KG gas up to the new Jamnagar refinery.

More importantly, GSPLs network at present is a North-South Gujarat pipeline model which is being broadened to include Rajkot, Morbi, Himmatnagar, and emerging economic hubs of Mundra and Pipavav ports, and the Dahej SEZ being set up by Ongc. This expansion will make GSPL a NSEW pipeline network in Gujarat.

And yet the capacity increase will lag Natural Gas demand by atleast 10 per cent of the estimated potential.

GSPL has a formal agreement with RIL to transmit up to 14 mmscmd of gas using its existing pipelines and develop new pipelines between Bharuch and Hadala and Rajkot-Jamnagar. GSPL would also be supplying 4.8 mmscmd of gas to Torrent Power from April 2008 for its 1100 MW Sugen power plant at Surat.

GSPL will see a doubling in pipeline capacities and quadrupling of Revenues over the next 4 years..the stock should become a core infrastructure play for all book runners.


source: value notes (a.s.hameed)