Gujarat State Petronet (GSPL) has a pipeline network within the state of Gujarat meant for intra-state transportation of gas. Currently its network is underutilized at sub 60%. Despite this, its standalone RoE stands at 15.6% (FY19). Any further improvement to this utilization offers operating leverage to the company.

Low gas prices and government’s focus on reducing pollution by moving away from coal/ oil-based fuel to gas based fuel augurs well.

With industrial recovery foreseen and gradual shift to gas, company is likely to witness its utilization inching up. Tariff increase in future, driven by revision of formula by the regulator, can help earnings growth of GSPL.

Its stake in Gujarat Gas at 54% gives it more flexibility rather than Gujarat Gas being just an associate (earlier ownership of 26%). Though it is leveraged buy-out and near-term concern, it is logical forward integration for GSPL.

Incrementally improved cash flows from core business can be utilized to bring down this acquisition debt offering financial leverage as well to the reported profitability.

Disclaimer: The above report is compiled from information available on public platforms. inChat team advises users to check with certified experts before taking any investment decisions.

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