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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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
Kotak downgraded GSPL\u00a0to\u00a0"reduce" from "buy", with a price target of Rs 360. Nuvama, too, did a similar revision of rating and slashed the target\u00a0price by 30 percent to Rs 288.<\/p>\n
Emkay, too, revised the call to \u201creduce\u201d, citing the tariff revision as a major negative surprise. The brokerage has a price target of Rs 370.<\/p>\n
ICICI Securities downgraded the stock to \u201csell\u201d and lowered the price target by 30 percent to Rs 304.<\/p>\n
GSPL managed to stage a sharp rebound early in the day, rising around 8 percent to hit the day's high of Rs\u00a0327.65 but soon started losing steam.<\/p>\n
At 12.13 pm, GSPL were trading at Rs 305.25 on the NSE, up 0.46 percent from the previous close.<\/p>\n
The PNGRB approved a\u00a0tariff of Rs 18.1\/mmbtu for GSPL's HP pipeline from May 1,\u00a0which 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.<\/p>\n
According to Kotak, the 47 percent cut reduces\u00a0its FY25-26 earnings estimates for GSPL by 28 to 37 percent, though it will have a nominal 4 percent impact on unified tariff.<\/p>\n
The brokerage also said GSPL's RoCE\u00a0is also likely to\u00a0decline sharply to 11-12\u00a0percent against around 24 percent on average over FY19-23.<\/p>\n
Nuvama\u00a0said though it anticipates rapid growth for GSPL on clear volume visibility, the 47 percent tariff cut could result in a 42\u00a0percent and a 40\u00a0percent reduction in\u00a0EBITDA estimates for FY25 and FY26.<\/p>\n
Emkay said the revision turned the\u00a0outlook weak for GSPL despite tailwinds like lower LNG prices.<\/p>\n