Shares of Gujarat State Petronet Ltd (GSPL) failed to hold on to early gains and came sharply off their highs in afternoon trade on April 23, extending losses for the second straight session as a tariff cut prompted a series of downgrades.
The stock took a beating in the previous session, falling 20 percent after the Petroleum and Natural Gas Regulatory Board (PNGRB) slashed tariffs for the company's high-pressure (HP) network by 47 percent.
The sharp cut poses a threat to the company's financial performance, which prompted brokerages such as Kotak Institutional Equities, Nuvama Institutional Equities, Emkay Global Financial Services, and ICICI Securities to downgrade the stock.
Kotak downgraded GSPL to "reduce" from "buy", with a price target of Rs 360. Nuvama, too, did a similar revision of the rating and slashed the target price by 30 percent to Rs 288.
Emkay, too, revised the call to “reduce”, citing the tariff revision as a major negative surprise. The brokerage has a price target of Rs 370.
ICICI Securities downgraded the stock to “sell” and lowered the price target by 30 percent to Rs 304.
GSPL managed to stage a sharp rebound early in the day, rising around 8 percent to hit the day's high of Rs 327.65 but soon started losing steam.
At 12.13 pm, GSPL was trading at Rs 305.25 on the NSE, up 0.46 percent from the previous close.
A deep cut
The PNGRB approved a tariff of Rs 18.1/MMBtu for GSPL's HP pipeline from May 1, which is not just 47 percent lower than the existing tariff (Rs 34/MMBtu) but also a third of the tariff sought (Rs 51-54/MMBtu) by the company.
According to Kotak, the 47 percent cut reduces its FY25-26 earnings estimates for GSPL by 28 to 37 percent, though it will have a nominal 4 percent impact on the unified tariff.
The brokerage also said GSPL's RoCE is also likely to decline sharply to 11-12 percent against around 24 percent on average over FY19-23.
Nuvama said though it anticipates rapid growth for GSPL on clear volume visibility, the 47 percent tariff cut could result in a 42 percent and a 40 percent reduction in EBITDA estimates for FY25 and FY26.
Emkay said the revision turned the outlook weak for GSPL despite tailwinds like lower LNG prices.
Though GSPL can seek a review of the order, initially, the tariff cut represents a significant impact on earnings, ICICI Securities said.
"If we apply this revised tariff to FY25-26E, it suggests a substantial 44-45 percent decrease in FY25/26 earnings-per-stock compared to previous estimates," the brokerage said in a note.
In contrast to the Street consensus, brokerage Prabhudas Lilladher upgraded the stock to “buy” from “accumulate”, saying the tariff finally ended the overhang and left no scope for any further negatives. The brokerage has a price target of Rs 392.
"We reiterate that this is indeed a very good price to buy the stock," the brokerage said.
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