GSPL Latest News : GSPL Shares Plunge 20% as PNGRB Slashes Gas Pipeline Tariffs by 47%
Investors in Gujarat State Petronet (GSPL) were hit with a rude awakening on April 22nd. The company’s stock price plunged by 20% during morning trading, dropping to Rs 302.15. This dramatic fall came after the Petroleum and Natural Gas Regulatory Board (PNGRB), the government agency responsible for overseeing the natural gas sector in India, slashed the rates GSPL can charge for transporting gas through its high-pressure pipeline network. The PNGRB’s decision to cut tariffs by a significant 47% sent shockwaves through the market, raising concerns about GSPL’s future profitability.
Making the new rate even more impactful, the PNGRB set the approved tariff at a much lower Rs 18.1/mmbtu. This price takes effect on May 1st, 2024. Not only is it 47% cheaper than the current rate, but it’s also a mere third of what GSPL had requested (Rs 51-54/mmbtu). This significant reduction suggests the regulator might have different projections for future gas volumes than GSPL.
Even analysts were surprised by the severity of the cut. While analysts at Kotak Institutional Equities expected a tariff reduction due to GSPL’s higher gas volumes compared to the previous order and the delay in revising the rates (which should have happened in April 2021), their predictions were for a more modest 20-30% decrease. The actual 47% cut came as a shock to GSPL.
Adding to the confusion, the PNGRB’s decision seems based on the assumption of much higher future gas volumes than what GSPL anticipated. This approach is a significant departure from past practices, according to Kotak analysts. This raises questions about the PNGRB’s methodology. The analysts even expect GSPL to contest the new tariff order in light of these concerns.
Further fueling the controversy, a PNGRB member, AK Tiwari, told CNBC-TV18 that they discovered discrepancies between the gas volumes GSPL reported and the regulator’s findings. This suggests a potential data mismatch that could be another factor behind the drastic tariff cut.
In Tiwari’s defense, he emphasized that the PNGRB conducted a public consultation before finalizing the order. He also made it clear that renegotiating gas volumes with GSPL wasn’t an option. However, he did acknowledge GSPL’s right to appeal the decision if they have substantial concerns.
Adding another layer to the story, Tiwari revealed that GAIL’s tariffs would also be revised, causing a near 2% drop in the company’s stock price during trading. This suggests a potential industry-wide reassessment of pipeline transportation costs.
The substantial tariff cut will severely impact GSPL’s profitability. Analysts at Kotak predict a decrease of 28-37% in GSPL’s earnings for the fiscal year 2025-26 due to the 47% cut. However, there’s a silver lining. The report also mentions that this significant reduction will only marginally affect the unified tariff by around 4%. This suggests that while GSPL’s earnings will suffer, the overall impact on gas prices for consumers might be relatively muted.
The financial outlook for GSPL seems bleak. Kotak analysts predict a sharp decline in Return on Capital Employed (RoCE) from an average of 24% between 2019-2023 to a mere 11-12%. This significant drop reflects the negative impact of the tariff cut. As a result, Kotak downgraded GSPL’s stock rating from “buy” to “reduce” and lowered their target price to Rs 360.
This decision by Kotak highlights the disappointment with the PNGRB’s order. Analysts were hoping the long-awaited tariff decision would clear up uncertainties and potentially lead to a stock price correction. However, the drastic cut in tariffs has done the opposite, introducing even greater uncertainty about future regulations and GSPL’s financial health.
RCB News – IPL Thriller: KKR Clinch Last-Over Victory Over RCB as Narine Shines with Bat & Ball
New Zealand vs Pakistan T20I Highlights: Kiwis Dominate with 7-Wicket Win
You must be logged in to post a comment.