Gujarat State Petronet Limited

This is my first post so I request you all to please ignore if you find anything silly. I would love to read your comments.
Company Background
Gujarat State Petronet Limited (GSPL) was set up to complement the efforts of GSPC. While GSPC harnesses and procures natural gas, GSPL is building the infrastructure that transmits the gas across the state of Gujarat and ultimately allows last-mile linkage to the end-user. GSPL is laying a gas grid, to facilitate gas transmission from supply points to demand centers. GSPL has already put in place a pipeline network of about 2700 km and further extension of the pipeline network is going on. The company has signed gas transmission agreements with various industries for the transportation of natural gas from various supply sources in Gujarat. Presently, the company transmits over 37 MMSCMD of natural gas.

The main thing to note here is that the parent company is a State company and they project themselves as Integrated Energy Companies as they have a presence in all 3 segments of Energy transmission (Upstream - GSPC, Midstream - GSPL, 2-3 SPVs specific to transmission, Downstream - CGD business of Guj Gas and Sabarmati gas)
Revenue Streams
Gas Transmission - Earns Revenue through transportation of gas from extraction sources and import terminals to different areas of Gujarat. Caters to City Gas distribution networks, Power Companies, and other two sectors. Below is the screenshot of the historical volume of transmitted gas and revenue earned through Transmission.

CGD Business: - Owns ~52% of Gujarat Gas Ltd. (it’s a complex ownership with parent company GSPC also having part of it)

Wind Power generations - Small percentage of revenue from this. Can be ignored for the sake of discussion

Investment Thesis

1. Building of LNG import terminals in Gujarat will lead to increased transmission of gas
2. LNG demand may rise as there is a push from the government to adopt cleaner fuels by industries.
3. in one of the analyst reports it was said that the company is having 100% utilization of its pipeline and company is increasing its transmission capacity
4. Procured licenses to lay cross-country pipelines (along with consortiums companies). Below are the details
   4.1 GSPL India Gasnet Limited (GIGL) for development of Mehsana – Bhatinda (approx
   1834 Kms) and Bhatinda – Jammu -Srinagar (approx 740 Kms) Pipeline Projects
   4.2 GSPL India Transco Limited (GITL) for development of Mallavaram - Bhopal –
   Bhilwara – Vijaipur (approx. 1881 Kms) Pipeline Project.
5. Industry to grow by 7% and company to grow by 10-12% as per Management
6. you get ownership of Gujarat gas ltd. (P/E: 25) at a cheap price (GSPL P/E: ~10)

Risks

1. Adoption of LNG - Availability of cheaper fuels is the main threat to the adoption of LNG.
2. Transmission revenue is inversely proportional to LNG price. since the price of LNG is increasing, it will be difficult for companies to switch to LNG
3. Company has Contingent liabilities
4. Did not calculate the pension obligation but not so huge
5. Frequent dilution of equity through ESOPs

Some Doubts

1. How can I get information on Capacity utilization
2. I was not able to understand how do they charge customers? The reason is that the implied tariff is fluctuating, so I want to know the reason as to why it has such a behavior.
3. How much more capacity will they be adding?
4. in some years the drop in sales was accounted to lower production of LNG in domestic fields. so I want to understand how do they source Imported LNG? do they have to Buy the gas? Do they have any kind of agreement?
5. Their OPM (standalone) is decreasing because of increasing ‘Gas Transmission expense’. Management does not provide any commentary on why it is increasing at a higher rate.

@Experts - please provide your thoughts.

Disc. - Invested Small Amount

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