Following a regulator’s 20% reduction in pipeline rates, GSPL’s shares

Following the announcement by the Petroleum and Natural Gas Regulatory Board (PNGRB) of a 47% reduction in rates for the company’s HP Pipeline network, shares of Gujarat State Petronet Ltd. (GSPL) were caught in a 20% downward circuit at Rs 302.30 on the BSE on Monday morning.

 

The rate was lowered by the board in its order from Rs 34.0 per mmbtu to Rs 18.1 per mmbtu (metric million British thermal unit). Starting on May 1, the new tariff will be in effect. The business has asked for an increase in rate, to Rs 50.77 per mmbtu.

The Board has further linked the tariff reduction to the pipeline’s economic life extension and greater volume assumption. The tariff order issued by PNGRB establishes the rates that a business may charge for moving natural gas via its pipeline networks.

“The regulatory board stated in its order that the tariff of GSPL HP would be reviewed in the following financial year if there is a significant variation in actual volume flows (in line with GSPL’s submission of 26 mmscmd (million metric standard cubic meters per day) as compared to the expected volume, i.e. 31.67 mmscmd considered by the Board in this Tariff Order).”

The three main variables that are causing the difference in the two organizations’ perspectives are the reduction in capex (which is lowered by Rs 13.7/mmbtu), opex (which is decreased by Rs 8.7/mmbtu), and volumes (which is reduced by Rs 11/mmbtu).

A TV broadcaster was informed on Monday by PNGRB member AK Tiwari that “this is just an adjustment of tariffs and not a cut.” He said that prior to releasing the final ruling, the agency had conducted public discussions.

According to Tiwari, tariff changes for GAIL will also occur, and if GSPL has any problems, it may file an appeal. Renegotiations with GSPL about volume are not in the cards.

Reduced tariffs may result in cheaper natural gas costs for businesses and consumers alike. Analysts predict that for GSPL, it would result in a 30–40% drop in earnings per share in FY25.

Nomura has reduced GSPL’s expected EBITDA for FY25 and FY26 by 37% and 42%, respectively. Moreover, the brokerage firm lowered the company’s projected earnings per share for FY25 and FY26 by 34% and 40%, respectively. Additionally, the stock was reduced to “reduce,” with a price objective of Rs 320 instead of the previous Rs 440.

Citi maintained its “sell” rating on GSPL but lowered its price objective for the company to Rs 295 from Rs 330. Emkay Global also dropped the price objective to Rs 370 per share and downgraded the company from a “buy” recommendation to a “reduce” one.