GSPL shares hit 20% lower circuit after tariff order disappoints

Shares of Gujarat State Petronet (GSPL) fell 20% to hit the lower circuit of Rs 302 in Modnay’s session after the Petroleum and Natural Gas Regulatory Board (PNGRB) slashed tariffs for the company's high-pressure (HP) network by a whopping 47%.

On 20th April, PNGRB issued a tariff order for GSPL’s HP gas network. The tariff was reduced to Rs 18.1/mmbtu from Rs 34.0/mmbtu provisionally. GSPL had requested for an upward tariff revision to Rs 50.77/mmbtu.

The key difference between GSPL and the regulator’s view stems from three heads, one being capex (Rs 13.7/mmbtu reduction), other being opex (Rs 8.7/mmbtu reduction), and the third being volume divisor (Rs11/mmbtu reduction).

The revised tariff will be applicable from 1st May and can be reviewed in the event that actual volume flows (GSPL’s submission: 26mmscmd) vary considerably from PNGRB’s assumption of 32mmscmd.

Here’s what brokerages have to say about the event:

Motilal Oswal

This decision is a major disappointment. We were building in a tariff decline of 15% YoY in FY25, while the actual decline in tariff for the HP gas grid stands at 47%. At this revised tariff, our FY25-26 EPS will see a sharp reduction of 40-45%.

The brokerage has a ‘buy’ view on the share with a target price of Rs 450.

Kotak Institutional Equities

A 47% tariff cut reduces our FY25/26 earnings by 28%/37%, but will impact the unified tariff by a nominal 4%. With the sharp tariff cut, RoCE will decline sharply to 11-12% (versus 24% on average over FY19-23).

The brokerage downgraded the rating to ‘reduce’ with a target price of Rs 360.

Emkay Global

The long-awaited HP grid tariff revision came as a major negative surprise. The effective cut vs FY19 blended book rate is hence 37% (assuming 20% LP volume share) vs our built-in 20%. PNGRB’s assumptions deviated on future capex, volume divisor & opex vs GSPL’s, while the prospective impact was Rs11/mmbtu vs earlier rate. FY25/26E standalone earnings hence get cut 16%/21%.

The brokerage downgraded GSPL to ‘reduce’ from ‘buy’, with the target price of Rs 370.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)