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Tuesday, March 17, 2009

PSL Limited: A Play On The National Gas Grid

Scripscan:PSL Limited:
CMP:61 rs

Story:We had the opportunity to meet the management of PSL over the weekend, and we came back positive on the emerging prospects. More so, there was nothing evident that could describe a 90 per cent loss in market capitalisation of the company over the past 12 months. PSL sells for roughly Rs 260 crore in market cap and an EV of Rs 1200 crore. Compare this to estimated Revenues of Rs 3400 crore and an estimated FY09 PAT of Rs 125 crore, and under-valuation becomes starkly apparent.Order book remains intact at Rs 6000 crore.This is the number that will remain outstanding at the end of March 2009, after considering supplies during Q4. About Rs 4000 crore of orders, out of the total order book, are from domestic buyers. There have been no cancellations, delays or re-negotiations on any of the existing orders.Further the demand scenario within India remains buoyant, with the formation of the Gas Grid progressing on schedule and expected to continue at a steady pace. The 2500 km East-West pipeline that links coastal Krishna Godavari with Uran is complete, spur lines extending down south to Mangalore and from Kochi to Mangalore are being readied. Finally, the Mangalore stretch will hook-up with Chennai.Up North, the HBJ pipeline will extend to Bhatinda in Punjab, passing through Delhi and Panipat and towards the Eastern end-the Jagdishpur end-point will be extended further towards Bengal. While the largest chunk of Natural Gas will be provided by Reliance, existing fields of Ongc-Bombay offshore, and Gujarat on-shore, alongside the Petronet terminals at Dahej and Kochi, and Shell's Gas Terminal at Hazira will provide Natural Gas from Middle Eastern sources.Finally, the Cairn oil and gas fields in Rajasthan will commence production from Q3 CY09, and the main pipeline transporting oil to Gujarat border will be ready by then, once again the gas supply will be hooked up to the national gas grid. It should be evident to all investors that as more gas becomes available, the core energy play in the nation will become natural gas and the direct beneficiary would be the oil and gas pipeline suppliers.GAIL has already come out with two big tenders of 100,000 tonnes and another of 370,000 tonnes. A part of these orders could move into the PSL fold by end March 2009.What should enthuse investors is, that pipeline owners and pipe producers in the US like TRP have been upgraded to BUY last week. Work on the $ 10 bn Trans America gas pipeline (Northern Slope) stretching from Alaska to Seattle has commenced.PSL's US based plant has gone commercial with initial orders of close to $ 100 mn received from Florida Gas. Negotiations with another 6-7 players is on, and more orders for the US operations are likely. Investors might note that the orders received so far are only for replacement of existing pipelines, and orders for fresh pipelines would be an addition to the industrial demand in the US market.At the Friday CMP of Rs 60, PSL fetches a PE of 2 based upon FY09e earnings and 1.5 on FY10e earnings. The stock remains a core play on energy and is a BUY at current price.
Source:Maverick and guli

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