Why GSPL Share Price is Falling

Oil & gas companies are frequently in the news, usually for a mix of the right/wrong reasons.

Unfortunately for Gujarat State Petronet bulls, the past few months have been tricky to navigate.

The share price shot up sharply from Rs 300 at the start of this year to Rs 400 in a month.

In a sudden and big shocker, share price of Gujarat State Petronet (GSPL) crashed 20% today.

This marks the biggest decline for the firm at a key juncture. The stock was on its way to surpass key levels and chart a multi-year breakout.

But today's sudden decline has erased all the gains it made in 2024.

So, why did GSPL crash 20% today?

Let's find out...

# Pipeline Transmission Tariff Reduced

Shares of the company were locked in the 20% lower circuit band today after Petroleum and Natural Gas Regulatory Board (PNGRB) cut the pressure transmission tariff on the company's Gujarat pipeline network by 47%.

According to experts, this is a big negative for the company as the regulated tariff was set 47% lower from Rs 34 per million metric British thermal unit (mmbtu), at Rs 18.1 per mmbtu, and was a far call from the Rs 50.8 sought by GSPL.

The reduction in the tariff directly affects the company's revenue from its pipeline services.

With a 47% cut, the amount GSPL can charge for transmitting natural gas through its pipelines is significantly lower.

Beyond the immediate financial impact, investors are also concerned about the long-term implications. If the regulatory environment becomes too uncertain, it could affect the company's growth prospects and its ability to invest in expanding or upgrading its infrastructure.

What Next?

Gujarat State Petronet is slated to announce its Q4 earnings next month on 8 May 2024. So, one thing to look forward to is the company's earnings call where the management could shed some light on this matter.

In Q3, the company had posted muted numbers as lower transmission volume was offset by slightly higher transmission margin.

While GSPL had sought Rs 50.8/mmbtu as the tariff, the 47% cut from the current Rs 34/mmbtu is a big shocker.

The street was expecting a 10-15% decline but the actual tariff that the governing body decided was way lower.

This decision has also taken a toll on other companies like GAIL, as there could be revision in tariffs for GAIL as well.

Keeping aside the current fall, the stock was on a roll until last week owing to strong growth prospects and its ambitious capex plans.

The company's revenue has grown at a double digit compound annual growth rate (CAGR) in the last five years. Same for net profit.

Financial Snapshot

Rs m, consolidated	FY19	FY20	FY21	FY22	FY23
Net Sales	93,451	122,436	115,354	179,908	181,166
Growth (%)	29%	31%	-6%	56%	1%
Operating Profit	26,784	33,307	36,655	36,057	38,126
OPM (%)	29%	27%	32%	20%	21%
Net Profit	9,986	17,292	16,068	16,383	16,415
Net Margin (%)	11%	14%	14%	9%	9%
ROE (%)	41.6	55.7	38.9	31.2	27.0
ROCE (%)	28.1	34.3	37.6	36.5	35.6
Dividend (Rs)	2.0	2.0	2.0	2.0	5.0
Debt to Equity (x)	1.4	0.7	0.3	0.1	0.0

Data Source: Ace Equity

With Gujarat being the highest natural gas consuming state (almost 40% of the domestic consumption), there is a steady utilisation of the company's pipelines.

The company also enters into gas transmission agreements with its customers for tenures ranging from one month to fifteen years.

Going forward Gujarat State Petronet plans to expand to other states covering the western and northern regions of India. This will help the company capitalise on India's growing demand for natural gas.

How Gujarat State Petronet Share Price has Performed Recently

In the past 5 days, the stock is down 18%. Majority of the fall could be attributed to today's 20% decline following the order.

In 2024 so far, the stock is down 5%.

GSPL has a 52-week high of Rs 407 touched on 8 February 2024 and a 52-week low of Rs 255 touched on 1 November 2023.

In the past one year, shares of the company have gained 14%.

Here's a table comparing Gujarat State Petronet with its peers -

Comparative Analysis

Company	GSPL	Adani Total Gas	Confidence Fut.	Gujarat Gas	Indraprastha Gas
ROE (%)	27.0	20.2	4.4	24.2	21.1
ROCE (%)	35.6	21.0	6.2	31.9	27.7
Latest EPS (Rs)	27.6	5.4	3.7	16.1	27.8
TTM PE (x)	13.7	168.1	30.2	34.1	15.7
TTM Price to book (x)	2.1	29.6	1.8	5.1	3.3
Dividend yield (%)	1.3	0.1	0.3	1.2	2.9
Industry PE	30.5
Industry PB	5.7

Data Source: Ace Equity

About GSPL

Gujarat State Petronet is a subsidiary of Gujarat State Petroleum Corporation, one of the country's leading oil & gas exploration companies.

The company's primary business is the transmission and distribution of natural gas.

It owns and operates a massive natural gas pipelines in the state of Gujarat, making the company the second-largest player in the industry.

The company also generates electricity through windmills.

To know more about Gujarat State Petronet, checkout its factsheet and latest quarterly results.

Happy Investing!

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