As a result of a pricing drop, Gujarat State Petronet experiences a dramatic decline from its peak for the day

As a result of a pricing drop, Gujarat State Petronet experiences a dramatic decline from its peak for the day

The steep rate decrease has caused brokerages including Kotak, Nuvama, Emkay Global, and ICICI Securities to lower the stock since it might jeopardize GSPL's financial performance.

 The stock market had a 20% decline in the prior session.

A tariff decrease caused a series of downgrades, and shares of Gujarat State Petronet Ltd (GSPL) failed to hold on to early gains and pulled abruptly off their highs in afternoon trading on April 23, extending losses for the second consecutive session.

The prior day saw a 20% decline in the shares after a 47% tariff cut for the company's high-pressure (HP) network by the Petroleum and Natural Gas Regulatory Board (PNGRB).

Brokerages including Kotak Institutional Equities, Nuvama Institutional Equities, Emkay Global Financial Services, and ICICI Securities downgraded the stock due to the significant cut's potential to jeopardize the company's financial performance.

With an emphasis on price goal of Rs 360, Kotak lowered GSPL from "buy" to "reduce". Nuvama also revised its rating in a similar manner, lowering its target price to Rs 288 by 30%.

Emkay amended the request to "reduce" as well, pointing to the tariff change as a significant unfavorable development. The brokerage wants to see prices reach Rs 370.

ICICI Securities reduced the price objective by 30% to Rs 304 and rated the stock to "sell."

Early in the day, GSPL was able to mount a strong comeback, increasing around 8% to reach the day's high of Rs 327.65, but it quickly began to lose momentum.

At 12:13 p.m., GSPL was up 0.46 percent from the previous close on the NSE, trading at Rs 305.25.

A deep gash

With effect from May 1, the PNGRB authorized a pricing of Rs 18.1/mmbtu for GSPL's HP pipeline. This tariff is not only 33% of the tariff that the business had requested, which was Rs 51-54/mmbtu, but it is also 47% less than the current tariff of Rs 34/mmbtu.

Kotak believes that the 47 percent drop would lower GSPL's FY25–26 profits by 28–37 percent, with a minor 4 percent effect on the unified tariff.

Additionally, according to the brokerage, GSPL's RoCE is probably going to drop significantly to 11–12% as opposed to an average of 24 percent for FY19–23.

Despite expecting GSPL to increase quickly based on clear volume visibility, Nuvama said that the 47 percent tariff decrease may cause EBITDA predictions for FY25 and FY26 to drop by 42 and 40%, respectively.

Emkay said that even with positive factors like declining LNG prices, the adjustment made the prognosis for GSPL poor.

The tariff drop has a substantial initial effect on profitability, even if GSPL may request a review of the ruling, according to ICICI Securities.

"If we apply this revised tariff to FY25-26E, it suggests an important difference 44-45 percent decrease in FY25/26 earnings-per-stock in comparison to previous estimates," the brokerage said in its note.

Brokerage Prabhudas Lilladher raised the stock from "accumulate" to "buy," defying the consensus on Wall Street, claiming that the tariff had fully removed the overhang and left no room for more negative developments. The brokerage wants to sell for Rs 392.

The firm said, "We reiterate that this is a very good price to buy the stock."