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Thursday, May 21, 2009

Gujarat State Petronet Ltd:-A safe and defesnive bet

Scripscan:Gujarat State Petronet Ltd
cmp:55
Traded in:Nse-bse

Story:GSPL covers nearly 33 districts of Gujarat and its clients include Gujarat Power, Essar Steel, Essar Power, Arvind Mills, Gujarat Narmada Valley Fertilizers and Gujarat State Financial Corporation. The company operates its pipeline network on an open-access basis, which means that the transmission capacity is available to all shippers without discrimination. Since the company is not involved in buying and selling gas, it''s not exposed to fluctuations in commodity prices.GSPL has an aggressive capital expenditure (capex) plan to invest Rs 1,900 crore by ''10 to take the pipeline network to 2,000 km. This will connect a number of gas-hungry industrial centres to the gas grid, bringing in more business for GSPL. With the natural gas regulator - Petroleum and Natural Gas Regulation Board (PNGRB) - becoming active, the wider reach of these pipelines will assume furthersignificance. PNGRB will not allow GSPL''s competitors to lay parallel pipelines and the company will hold competitive advantage while bidding for new projects in adjacent areas.GSPL''s return on capital employed (RoCE) has remained at reasonable levels of 10-11% in the past couple of years. This is below the 12% RoCE allowed by PNGRB under its guidelines. Thus, there is hardly any risk of GSPL having to reduce transport tariffs in future.Over the next three years, the availability of natural gas in India is expected to double.GSPL also holds strategic stakes in three city gas distribution companies - two in Gujarat and one in Andhra Pradhesh, which offer a natural and lucrative diversification opportunity to the company.It is India''s only company that transmits natural gas for its clients without trading in it. It has set up a 1,130-km-long natural gas pipeline network connecting various districts in Gujarat, which is India''s largest natural gas producing and consuming state.GSPL is expanding its pipeline network aggressively, which has put pressure on its financial performance due to a rise in interest and depreciation costs. However, the current investments will pay off well once more natural gas becomes available and the capacity utilisation improves. With the availability of natural gas slated to double in the next three years, GSPL will emerge as a key beneficiary.Considering the aggressive depreciation policy adopted by the company, its real value is reflected by the growth in its cash EPS. Hence, for long-term investors, the scrip offers attractive returns.

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