Foreign brokerage Citi has upgraded Gujarat State Petronet Ltd (GSPL) to 'Buy' following the new pipeline approval by the PNGRB, but said GAIL Ltd and Mahanagar Gas Ltd (MGL) remained its preferred gas picks.
Citi said the new pipeline approval should have no immediate implications for GSPL's tariffs, but it improves the likelihood of some future reversal to the sharp 47 per cent tariff cut that was announced in April 2024. It changed its rating from 'Sell' to 'Buy' with an unchanged target price of Rs 325.
Following the development, the stock rose 1.23 per cent to Rs 275.85. MGL climbed 2.67 per cent to Rs 1,318.55. GAIL India Ltd was down 0.47 per cent at Rs 157.20.
The PNGRB has approved the capacity expansion of GSPL's key HP gas pipeline network in Gujarat by granting approval for the company to lay a new pipeline (Anjar-Palanpur). The approved pipeline capex of Rs 2,100 crore will add 12 mmscmd to the capacity of the HP gas grid.
"We believe that once the actual expenditure on the pipeline ls incurred (timeline of 3 years), this could lead to upside to GSPL's HP tariff, all else being equal. The stock has corrected by 35 per cent over the last 6 months; we upgrade to Buy with an unchanged Rs 325 TP. The new pipeline would effectively connect the Mundra LNG terminal to GSPL's Mehsana-Bhatinda pipeline, thereby potentially increasing competition for PLNG's Dahej terminal," it said.
Citi said the 12 mmscmd will lead to the capacity of the HP gas grid increasing to 45 mmscmd. It would connect the 5 MMTPA Mundra LNG terminal, which currently lies under-utilised due to pipeline capacity constraints, to demand centres along the Mehsana-Bhatinda pipeline of GSPL & its JV partners, CLSA said.
"The regulator has specified that the capex towards this pipeline will be considered for tariff purposes only after it is actually incurred. Note that GSPL had, in its December 2023 HP tariff filing, claimed total future capex outgo of Rs 3,400 crore vs. Rs 1,800 crore that was eventually allowed by the PNGRB- this was one of the reasons for the regulator cutting the HP tariff to Rs 18/mmBtu in its Apr24 review (vs Rs 34/mmBtu that was the then-existing tariff and Rs 51/mmBtu that was sought by GSPL)," Citi said.