Petronet LNG - Strong show continues - Prabhudas Lilladher

Petronet LNG's (PLNG's) Q3FY12 result was significantly better than our expectation on the EBITDA and bottom-line front. Top-line registered a growth of 74.5% YoY to Rs63.3bn (Rs36.3bn) on account of 20.8% YoY growth in volumes, coupled with 43.9% YoY growth in realisations. EBITDA/TBTU witnessed an expansion, from Rs33.2/TBTU in Q2FY12 to Rs34.7/TBTU in Q3FY12. Bottom-line, during the quarter, stood at Rs2,953m (Rs1,708m), registering an increase of 72.9% YoY v/s our expectation of Rs2,495m during the quarter.

Performance led by spot marketing margins: Our calculation suggests that the company made gross marketing profits on spot volumes of Rs1,757m (28.0% of the reported gross margins for the quarter). The share of marketing margins in overall gross margins has increased from 11% in Q3FY11 to 28% in Q3FY12. We believe, PLNG has witnessed a 39% QoQ growth in marketing margins from US$1.0/mmbtu (Q2FY12 to US$1.39/mmbtu (Q3FY12). Volumes during Q2FY12 were at 145TBTU (120TBTU); the same were slightly higher than our estimate of 142TBTU. PLNG imported around 45 cargoes in the quarter compared to 42 cargoes handled in Q2FY12.

Outlook: PLNG's utility nature of business (stable re-gasification margins and term contracts), low regulatory risks (re-gasification margins are not currently under PNGRB's purview) and expanding volumes on account of strong demand estimates, hold it in good stead. We have increased our marketing margins assumption for the on account of strong demand. We believe that continued strength in the marketing margins on the spot volumes, coupled with positive news-flow pertaining to Kochi terminal, is likely to provide positive catalyst to the stock price. We maintain 'BUY', with a DCF-based target price of Rs197/share, implying a P/E of 12.6x FY13E.

Source : Equity Bulls

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