1QFY2012 Result Update | Oil & Gas

August 9, 2011

GSPL
Performance Highlights
Y/E March (` cr) Total operating income EBITDA EBITDA margin (%) PAT
Source: Company, Angel Research

ACCUMULATE
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Oil & Gas 5,747 0.7 128/77 365385 10 16,858 5,073 GSPT.BO GUJS@IN
252 238 94.6 105 12.9 10.0 (244)bp 30.7 255 230 90.0 151 11.4 14.0 211bp (8.8)

`102 `117
12 Months

1QFY2012 1QFY2011 % chg (yoy) 4QFY2011 % chg(qoq) 284 262 92.1 137

For 1QFY2012, GSPL reported robust set of numbers. The top line grew by 12.9% yoy, while the bottom line grew by 30.7% yoy due to lower depreciation costs and higher other income. We recommend Accumulate on the stock. Transmission volumes flat, realisation higher: GSPLs total operating income for the quarter increased by 12.9% yoy to `284cr mainly due to higher transmission volumes and better realisation. Transmission tariff for 1QFY2012 grew by 11.4% yoy to `0.85/scm mainly on account of a marginal improvement in spot volumes. Transmission volumes grew by 1.2% yoy to 36.8mmscmd. EBITDA grew by 10.0% yoy to `262cr, representing OPM of 92.1% compared to 94.6% in 1QFY2011. PAT surges by 30.7% yoy: During the quarter, depreciation expenses declined by 34.1% to `45cr mainly due to lower depreciation rate. Interest expense grew by 44.4% yoy to `32cr, while other income grew by 95.9% yoy to `11cr. Hence, PAT grew by 30.7% yoy to `137cr. Outlook and valuation: We believe GSPL is a leveraged play on increasing gas demand in Gujarat (the countrys hydrocarbon capital) from gas-based power plants and rising spot prices. We believe there is a limited downside risk on the tariff front. Further, successful winning of three interstate pipelines provide revenue visibility over the medium term. We have valued GSPL stock at 6.5x FY2013E EBITDA, which provides a target price of `117. Hence, we recommend an Accumulate rating on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 37.7 32.2 8.2 21.9

Abs. (%) Sensex GSPL

3m (9.0) 4.5

1yr (7.8) (8.3)

3yr 11.1 69.9

Key financials
Y/E March (` cr) Net sales % chg Net profit % chg OPM (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2010 992 103.5 411 231.9 93.7 7.4 13.9 3.7 29.8 25.5 6.8 7.3

FY2011E 1,039 4.8 506 23.2 92.6 9.0 11.4 2.9 28.4 24.8 6.7 7.2

FY2012E 1,173 12.9 574 13.4 92.2 10.2 10.0 2.3 25.6 23.5 5.9 6.4

FY2013E 1,259 7.3 622 8.2 92.5 11.1 9.3 1.9 22.7 22.3 5.3 5.7

Bhavesh Chauhan
Tel: 022 - 3935 7800 Ext: 6821 bhaveshu.chauhan@angelbroking.com

Please refer to important disclosures at the end of this report

GSPL | 1QFY2012 Result Update

Exhibit 1: 1QFY2012 performance

Y/E March (` cr) Total Operating Income Total operating expenditure EBITDA EBITDA Margin (%) Other Income Depreciation Interest PBT before GSEDS GSEDS contribution (30% of PBT) PBT post GSEDS PBT Margin (%) Total Tax % of PBT PAT PAT Margin (%)
Source: Company, Angel Research

1QFY2012 284 22 262 92.1 11 45 32 195 195 68.7 58 29.7 137 48.3

1QFY2011 252 14 238 94.6 6 69 22 153 153 60.6 48 31.2 105 41.7

% chg (yoy) 12.9 63.6 10.0 95.9 (34.1) 44.4 28.0 28.0 22.1 30.7

4QFY2011 255 25 230 90.0 10 (17) 24 233 233 91.4 82 35.4 151 59.0

% chg (qoq) 11.4 (12.2) 14.0 15.3 37.3 (16.2) (16.2) (29.6) (8.8)

FY2011 1039 77 962 92.6 29 130 96 765 765 73.6 259 33.8 506 48.7

FY2010 992 60 932 94.0 25 236 94 627 627 63.2 213 34.0 414 41.7

% chg (yoy) 4.8 29.7 3.2 17.4 (45.1) 2.4 22.0 22.0 21.4 22.4

Transmission volumes flat, realisation higher: Total operating income increased by 12.9% yoy to `284cr mainly due to higher transmission volumes and better realisation. Transmission tariff for 1QFY2012 grew by 11.4% yoy to `0.85/scm mainly on account of a marginal improvement in spot volumes. Transmission volumes grew by 1.2% yoy to 36.8mmscmd.

Exhibit 2: Higher gas volumes and realisation...

37.0 36.5 36.0 35.5 35.0 34.5 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 Gas volumes transported Average realisation (RHS) 0.88 0.86 0.84 0.82 0.80

Exhibit 3: ...led to top-line growth

290 280 270 120.0 100.0 80.0 60.0

(mmscmd)

(` cr)

0.78 0.76 0.74 0.72 0.70

(` /scm)

260 250 240 230 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 Total operating revenues

20.0 -

(20.0) Operating revenues growth (RHS)

Source: Company, Angel Research

Source: Company, Angel Research

August 9, 2011

(%)

40.0

GSPL | 1QFY2012 Result Update

EBITDA up 10.0% yoy: Staff costs increased by 118.4% yoy to `6cr, while administration and other charges increased by 117.5% yoy to `6cr. EBITDA grew by 10.0% yoy to `262cr, representing OPM of 92.1% in 1QFY2012 compared to 94.6% in 1QFY2011.

Exhibit 4: Operating performance

300 250 200 91.9 94.6 91.8 93.8 90.0 92.1 100.0 90.0 80.0 70.0 50.0 40.0 30.0 20.0 10.0 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 60.0

(` cr)

150 100 50 -

Operating Profit
Source: Company, Angel Research

Operating Margins (RHS)

PAT surges by 30.7% yoy: During the quarter, depreciation expenses declined by 34.1% to `45cr due to lower depreciation rate. Interest expense grew by 44.4% yoy to `32cr, while other income grew by 95.9% yoy to `11cr. Hence, PAT grew by 30.7% yoy to `137cr.

Exhibit 5: PAT growth trend

180 160 140 120 210.4 250.0 200.0 150.0

(` cr)

80 60 40 20 4QFY10 1QFY11 2QFY11 PAT 3QFY11 30.6 (16.8) 37.9

39.7

30.7

50.0 (50.0)

4QFY11

1QFY12

PAT growth (RHS)

Source: Company, Angel Research

August 9, 2011

(%)

100

100.0

(%)

GSPL | 1QFY2012 Result Update

Investment arguments
Tariff decline risk captured in valuations: Transmission tariff is one of the biggest
variables affecting GSPL's valuations. We believe tariffs are unlikely to fall below `0.75/scm levels in FY2013E and beyond. Competitive tariffs coupled with low volume flows had resulted in low RoCE of 711% during FY200309, which was lower than the mandated PNGRB's regulated IRR. Thus, on account of the same, GSPL's network was unable to get the mandated returns.

New pipelines to open up growth vistas: GSPL now seeks to expand its
operations beyond the state. In wake of the same, GSPL had submitted Expression of Interest (EoIs) for four interstate pipelines, which have a combined length of 5,675km. Of these, GSPL has successfully won three interstate pipelines. We are currently not building in any upside from these pipelines, as implementation will take at least four to five years. Moreover, we await more clarity on the gas source for these pipelines. However, we believe winning these pipelines has resolved scalability issues for the company beyond Gujarat.

Outlook and valuation

We believe GSPL is a leveraged play on increasing gas demand in Gujarat (the countrys hydrocarbon capital) from gas-based power plants and rising spot prices. We believe there is a limited downside risk on the tariff front. Further, successful winning of three interstate pipelines provide revenue visibility over the medium term. We have valued GSPL stock at 6.5x FY2013E EBITDA, which provides a target price of `117. Hence, we recommend an Accumulate rating on the stock.

Exhibit 6: Valuation
(` cr) EBITDA Target EV/EBITDA (x) Target EV Net debt Target m-cap Target price (`)
Source: Company, Angel Research

FY2013E 1,164 6.5 7,569 950 6,619 117

Exhibit 7: Key assumptions

Particulars Transmission volume (mmscm) Avg. realisations/scm
Source: Company, Angel Research

FY2012E 14,500 0.80

FY2013E 15,550 0.80

Exhibit 8: Angel EPS forecast vs. consensus (`)

Angel Forecast Bloomberg Consensus Variation (%) FY2012E FY2013E
Source: Company, Angel Research

10.2 11.1

9.3 10.0

9.8 10.5

August 9, 2011

GSPL | 1QFY2012 Result Update

Exhibit 9: Recommendation summary

Company GAIL IGL GSPL Petronet CMP (`) 438 414 102 171 TP (`) 508 117 Buy Accum. Neutral - Neutral Reco. Mcap (` cr) 55,534 5,796 5,747 12,821 Upside (%) 16 14 P/E (x) FY12E 13.6 17.6 10.0 14.1 FY13E 12.3 16.5 9.3 12.9 P/BV (x) FY12E 2.5 4.6 2.3 3.7 FY13E 2.1 3.8 1.9 3.0 EV/EBITDA (x) FY12E 8.3 9.4 6.4 8.7 FY13E 7.3 8.6 5.7 7.5 RoE (%) FY12E 19.6 29.1 25.6 29.8 18.7 25.3 22.7 26.0 RoCE (%) 22.3 33.1 23.5 22.5 21.7 31.0 22.3 21.1 FY13E FY12E FY13E

Source: Angel Research

Exhibit 9: One-year forward P/E

250 200

Share price (`)

150 100 50 0

Aug-08

Dec-10

Apr-06

Mar-09

Nov-06

Oct-09

7x
Source: Company, Angel Research

10x

13x

16x

August 9, 2011

May-10

Jun-07

Jan-08

19x

Jul-11

GSPL | 1QFY2012 Result Update

Profit & loss statement

Y/E March (` cr) Total operating income % chg Total Expenditure O& M Expenditure Staff expenditure Other operating expenditure EBITDA % chg (% of Net Sales) Depreciation and amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Prior period items Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of asso. Less: Minority interest (MI) PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E 418 31.6 53 16 8 30 364 36.1 87.2 163 201 21.9 48.2 82 29 19.7 149 8.9 149 49 33.0 100 100 100 12.2 23.9 1.8 1.8 8.0 487 16.7 63 23 11 29 425 16.6 87.2 170 254 26.4 52.2 87 24 12.7 192 28.6 192 68 35.4 124 124 124 24.0 25.4 2.2 2.2 23.5 992 103.5 62 28 10 24 930 118.8 93.7 236 693 172.4 69.9 94 25 4.0 3 624 225.5 624 213 34.1 411 411 411 231.9 41.4 7.4 7.4 235.1 1,039 4.8 77 36 15 26 962 3.5 92.6 130 832 20.0 80.1 96 29 3.8 765 22.6 765 259 33.8 506 506 506 23.2 48.7 9.0 9.0 22.4 1,173 12.9 92 46 19 27 1,081 12.4 92.2 140 942 13.2 80.3 108 37 4.2 870 13.7 870 296 34.0 574 574 574 13.4 49.0 10.2 10.2 13.4 1,259 7.3 95 47 20 27 1,164 7.7 92.5 159 1,006 6.8 79.9 102 38 4.0 942 8.2 942 320 34.0 622 622 622 8.2 49.4 11.1 11.1 8.2

August 9, 2011

GSPL | 1QFY2012 Result Update

Balance sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Net Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 2,019 482 1,537 589 36 550 257 188 105 511 39 6.3 2,207 2,421 653 1,769 645 36 562 97 302 162 533 28 3.3 2,481 3,325 889 2,437 539 67 755 174 360 221 833 (78) 0.3 2,964 4,200 1,019 3,182 355 77 900 239 512 149 759 141 0.2 3,754 4,605 1,158 3,447 650 89 873 195 512 167 800 73 0.3 4,259 5,405 1,317 4,088 450 86 1,046 356 512 178 892 154 0.3 4,778 562 579 1,141 966 100 2,207 562 653 1,215 1,151 114 2,481 562 1,001 1,564 1,260 141 2,964 564 1,442 2,007 1,483 264 3,754 564 1,918 2,482 1,410 368 4,259 564 2,441 3,005 1,310 464 4,778 FY2008 FY2009 FY2010 FY2011E FY2012E FY2013E

August 9, 2011

GSPL | 1QFY2012 Result Update

Cash flow statement

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2008 FY2009 FY2010 FY2011E FY2012E FY2013E 149 163 246 (26) (41) 492 (582) (36) 26 (592) 108 102 (33) (1) 176 76 181 257 191 170 (149) (23) (53) 136 (458) 23 (435) 185 (49) 3 139 (159) 257 97 627 236 184 (13) (187) 847 (798) (31) 13 (817) 109 (66) 3 46 77 97 174 765 130 (155) (7) (147) 586 (691) (10) 7 (693) 2 250 (66) (14) 172 65 174 239 870 140 35 (15) (179) 851 (700) 15 (685) (100) (98) (198) (33) 239 206 942 159 41 (16) (221) 904 (600) 16 (584) (100) (98) (198) 121 206 328

August 9, 2011

GSPL | 1QFY2012 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) RoIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating RoE Returns (%) RoCE (Pre-tax) Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT/Interest) 0.6 1.9 2.5 0.9 2.5 2.9 0.7 1.2 7.4 0.6 1.3 8.7 0.5 1.1 8.7 0.3 0.8 9.9 0.2 36.6 33.4 0.2 49.5 35.9 0.3 41.4 23.8 (59.2) 0.3 34.2 25.5 1,831.3 (61.6) 0.3 20.6 23.3 1,605.8 (34.1) 0.3 21.1 24.0 2,173.2 (46.9) 9.8 13.8 9.6 10.9 16.9 10.5 25.5 35.7 29.8 24.8 31.6 28.4 23.5 29.4 25.6 22.3 27.9 22.7 48.2 67.4 0.2 7.4 6.0 1.2 7.9 52.2 64.7 0.2 7.7 5.3 1.3 8.6 69.9 66.0 0.4 18.1 5.1 1.0 30.9 80.1 66.0 0.3 17.8 4.6 0.8 32.1 81.2 66.0 0.3 16.8 5.0 0.6 30.6 80.9 66.0 0.3 16.0 5.0 0.4 29.9 1.8 1.8 4.7 0.5 20.1 2.2 2.2 5.2 0.7 21.5 7.4 7.4 11.5 1.0 27.7 9.0 9.0 11.3 1.0 35.6 10.2 10.2 12.7 1.5 44.0 11.1 11.1 13.8 1.5 53.3 57.7 21.9 5.1 0.5 15.3 17.6 2.9 46.7 19.6 4.8 0.7 13.9 15.9 2.7 13.9 8.9 3.7 1.0 6.8 7.3 2.3 11.4 9.1 2.9 1.0 6.7 7.2 1.8 10.0 8.1 2.3 1.5 5.9 6.4 1.6 9.3 7.4 1.9 1.5 5.3 5.7 1.4 FY2008 FY2009 FY2010 FY2011E FY2012E FY2013E

1,886.8 2,316.2 2,519.2 (82.9) (107.4)

August 9, 2011

GSPL | 1QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

GSPL No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

August 9, 2011

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