Buy GSPL For A 11.2% Upside In 1-3 Months

About the Company

Gujarat State Petronet Limited (GSPL) is a pipeline company that develops energy transportation infrastructure and connects natural gas supply sources, including liquefied natural gas terminals. The company has two segments: gas transportation, which is engaged in transportation of gas through pipeline, and windmill, which includes generation of electricity through windmill. GSPL has already put in place a pipeline network of about 1960 kms and further extension of this network is going on. The company transports gas to more than 31 customers, including refineries, steel plants, fertilizer plants, petrochemical plants, power plants, glass industries, textiles, chemical and other miscellaneous industries. GSPL has set up 52.50 megawatt wind power project at Maliya Miyana (District-Rajkot) and Gorsar & Adodar (District-Porbandar) in Gujarat. GSPL is a subsidiary of Gujarat State Petroleum Corporation (GSPC). (Source: Reuters, Company)

Investment Rationale

Large potential for natural gas in India

India is a significant consumer of energy resources. The country’s economy is growing at a fast pace which in turn has led to the growth in primary energy consumption at a CAGR of over 6.5% from 2006 to 2010 (Source: BP Statistical Review of World Energy, June 2011). Coal, oil, and natural gas are the three primary commercial energy sources in India. India’s energy mix has coal as a major contributor (~53%), with power generation being predominantly dependent on coal. The share of oil is 30% in the overall energy mix. The share of natural gas is 11% (Source: BP Statistical Review of World Energy, June 2011) in the overall energy mix of India. With gas becoming the ‘preferred fuel’ for industries, the latent potential for gas remains very large in the country. Predominantly, India has been a gas-starved nation. In fact, Gujarat alone accounts for almost 1/3rd of the total natural gas consumption in India.

Rs 3000 crore capex plan for Gujarat in next 5-years

GSPL plans to invest nearly Rs 3,000 crore on expanding its network of gas pipelines in Gujarat over the next five years.

The company has estimated that the volume of gas supplies in Gujarat would increase from around 35 million metric standard cubic metres per day (mmscmd) in March 2011 to 45 mmscmd in the next couple of years. The company, which has so far laid a 1,960-km-long gas pipeline network across Gujarat, will be extending it up to 2,400 km in the next five years, with a capital expenditure of Rs 600 crore to Rs 700 crore every year.

GSPL led JV for 3 cross-country pipeline projects

GSPL, IOCL, BPCL and HPCL have executed the joint venture agreements (JVA) on April 30, 2012 for developing three cross country natural gas transmission pipelines. GSPL has 52% stake in the consortium, with Indian Oil Corporation (IOCL) having 26% stake, Bharat Petroleum Corporation (BPCL) with 11% stake and Hindustan Petroleum Corporation (HPCL) having 11% stake in the JV. The consortium partners have been awarded the letters of authorization by Petroleum and Natural Gas Regulatory Board (PNGRB) for developing three cross country natural gas transmission pipelines: Mallavaram-Bhopal-Bhilwara-Vijapur (MBBV) pipeline (1635 kms), Mehsana – Bhatinda pipeline (1670) kms and Bhatinda-Jammu-Srinagar pipeline (740 kms). These inter-state pipelines will carry around 90 mmscmd of gas daily.