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Gujarat State Petronet (GSPL) reported a rise in transmission volume QoQ from 25.8mmscmd to 29.65mmscmd during the quarter QoQ led primarily by power sector, ref/petrochem and others. Implied tariff stood at Rs863/mscm compared with Rs847/mscm in the previous quarter. Opex per mscm declined from Rs332 to Rs149. As a result of higher volume QoQ and lower opex, EBITDA grew a sharp 62% QoQ to Rs2bn (Ple Rs1.5bn, BBGe Rs1.6bn). PAT came in at Rs1.4bn (Ple Rs1.2bn, BBGe Rs1.1bn). The stock is currently trading at 20.6x FY26 EPS. We upgrade the stock to ‘Accumulate’, primarily on account of recent decline in the stock. Investments in Gujarat Gas (54.2% stake) and Sabarmati Gas (27.5% stake) at a 25% holding discount provide a valuation of Rs230, and valuing the core business at 10x FY27E adj EPS at Rs118, we arrive at a TP of Rs348 (unchanged).

Transmission volume improves: Transmission volume stood at 29.65mmscmd. Power sector witnessed sharpest improvement from 1mmscmd in the previous quarter to 3.8mmscmd but was still down from 6.4mmscmd in Q1FY25, primarily due to early onset of monsoon, thereby decreasing the demand of gas-based power. Ref/Petrochem also witnessed 0.6mmscmd growth QoQ while CGD witnessed 0.3mmscmd decline sequentially.

Implied tariff at Rs863/mscm: Against Rs847 and Rs963 in Q4FY25 and Q1FY25, implied transmission tariff stood at Rs863 during the quarter. The company had filed a writ against the tariff order of the regulatory board and is awaiting a decision.

Company outlook: LNG prices are expected to decline in the longer run with addition of capacities globally. As a result, the transmission volumes are likely to rise. For FY26 and FY27, we estimate transmission volume to rise from 30.2mmscmd in FY25 to 33mmscmd in FY26 and then to 37mmscmd in FY27 driven by growth in CGDs, ref/Petrochem. Due to the recent correction in the stock, we upgrade it from ‘Hold’ to ‘Accumulate’.

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