Gujarat State Petronet Ltd. has received approval from the Petroleum and Natural Gas Regulatory Board to lay the Anjar-Palanpur pipeline. With this new pipeline approval, Citi has given the company a double upgrade to 'Buy' from its earlier 'Sell', as GSPL's long-term outlook improves.
The brokerage has maintained its target price at Rs 325 per share, offering a 20% upside from the current market price. Following the 35% correction in GSPL's stock over the past six months, Citi believes the risk/reward ratio is now attractive.
The new pipeline, with a capacity of 12 mmscmd, will increase the total capacity of GSPL's high-pressure gas grid in Gujarat to 45 mmscmd. The approved capital expenditure for this project is Rs 2,100 crore, with completion expected within three years.
The pipeline will connect the Mundra LNG terminal to GSPL's Mehsana-Bhatinda pipeline, which is crucial for transporting gas in the region. Currently, the Mundra terminal is under-utilised due to pipeline capacity constraints.
While the immediate tariff impact is limited, the long-term potential for tariff reversal and capacity expansion makes GSPL an attractive investment at current levels, said the brokerage.
Notably, GSPL had claimed a total future capex of Rs 3,400 crore in its December 2023 HP tariff filing, but only Rs 1,800 crore was approved by the PNGRB. This led to a 47% tariff cut in April 2024, reducing the tariff from Rs 34 per million British thermal units to Rs 18 per mmbtu.
According to the brokerage, key risks include higher LNG prices leading to lower transmission volumes, potential for lower-than-expected tariffs, and delays in GSPL's merger with Gujarat Gas.
The note by Citi also pointed that GSPL faced challenges between financial year 2013 and financial year 2016 due to declining transmission volumes from high LNG prices and reduced gas supplies from the KG basin, but the situation improved between fiscal 2017 and fiscal 2020 with increased LNG attractiveness. However, with the rise in LNG prices in recent years, GSPL once again saw declining volumes.
Despite these challenges, the long-term outlook remains favorable, said Citi, with India's gas consumption expected to increase due to structural factors such as growing industrialisation and a shift towards cleaner energy sources.
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