Shares of Gujarat State Petronet Ltd (GSPL) were locked in a 20 percent lower circuit at Rs 302.15 in the morning trade on April 22 after the Petroleum and Natural Gas Regulatory Board (PNGRB) slashed tariffs for the company's high pressure (HP) network by a whopping 47 percent.
The approved tariff of Rs 18.1/mmbtu effective from May 1, is not just 47 percent lower than the existing tariff (Rs 34/mmbtu) but also a third of the tariff sought (Rs 51-54/mmmbtu) by GSPL.
The sharp cut also came as a negative surprise for GSPL. Analysts at Kotak Institutional Equities said there was a case for a tariff cut of 20-30 percent due to GSPL's higher actual volumes (versus the last tariff order) and delays (revision due from April 2021).
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However, the PNGRB’s assumption of a much higher future volumes divisor was perplexing and contrary to past practices, said Kotak analysts who expect GSPL to challenge the tariff order. AK Tiwari, member of the PNGRB, in an interaction with CNBC-TV18 stated that they found a difference in volumes for GSPL as compared to what the company had suggested.
Tiwari also said that PNGRB had done a public consultation before issuing the final order. He further clarified that there was no question of renegotiation on volumes with GSPL however, if the latter has some concerns they can come up with an appeal.
Meanwhile, Tiwari also stated that tariffs will be revised for GAIL as well, which sent shares of the company down nearly 2 percent in trade.
The new tariff also will also have significant downside implications for GSPL's earnings. "A 47 percent tariff cut reduces our FY2025-26 earnings estimates for GSPL by 28 percent-37 percent but will impact the unified tariff by a nominal 4 percent," the Kotak report said.
The brokerage also said RoCE will decline sharply to 11-12 percent (versus around 24 percent on average over FY19-23). Kotak downgraded GSPL to "reduce" from the previous "buy" call, with a price target of Rs 360.
Analysts at Kotak expected the much-awaited tariff order to reduce overhang on the stock and reduce mispricing. "However, this tariff order is disappointing and increases regulatory uncertainty, in our view," it said.
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