PETRONET LNG - PINC Research

Posts record Run-rate; Exceeds Expectations

Petronet LNG's (PLL) Q3FY12 results were above our and street expectations as volume grew by 21%YoY and 7.3%QoQ to 144.9tbtu led by very high capacity utilisation of 113% (Q2FY12-106%, Q1FY12-104%). This coupled with high LNG prices (pass-through) drove net sales up by 74%YoY and 18%QoQ to Rs62.6bn. EBITDA margin expanded by 4.6%QoQ to Rs34.7/mmbtu driven by strong margins on spot cargoes. As a result, net profit increased to Rs2.95bn (+73%YoY, +13.5%QoQ) against our estimate of Rs2.5bn.

Capacity utilisation at peak: PLL had volume of 2.8mmt resulting in highest ever capacity utilisation of ~113%. The company had a volume of 145tbtu out of which 98tbtu was long-term and 25tbtu was spot and remaining 22tbtu was re-gas volume for GAIL/GSPL which implies a run-rate of >11mmt of volumes on an annualised basis. Management remains confident of achieving similar utilisation in the future.

Strong marketing margin continues: PLL has charged strong marketing margin on spot volume (~USD1.1/mmbtu vs ~USD0.9/mmbtu in Q2FY12) over and above re-gas margin which shows their strength in maintaining the margin despite rising LNG prices and rupee depreciation.

Correction in spot LNG prices: With PLNG already running at full capacity (utilisation of 104%/106%/113% in 1Q/2Q/3Q), it will not be an immediate beneficiary of fall in spot LNG prices from ~USD16.5/mmbtu to ~USD13/mmbtu and rupee appreciation given negligible room for further volume expansion in FY13. On the bright side, price correction should make LNG competitive with other fuels.

Ambiguity related to regulation on marketing margin: Government has entrusted PNGRB to regulate marketing margins. We note that PLNG's earnings in the recent quarters have been boosted by high margins charged on spot LNG. However, LNG importers like PLNG are virtually out of the regulator's control. Moreover, as natural gas is not notified and imported gas is market linked, these companies are under no obligation to give details of price/margin breakdown.

New volume expected from FY14: Kochi terminal (Capex - Rs42bn) is expected to be commissioned in Q3CY12 and Dahej second jetty (Capex - Rs9bn) in Q3CY13 which limits it's volume growth for FY13.

VALUATIONS AND RECOMMENDATION

We have introduced FY14 estimates and increased our earning estimates for FY12 and FY13 by 8.4% and 3.1% respectively on the back of higher capacity utilisation and strong marketing margin. At the CMP of Rs164, the stock is trading at P/E of 11.3x & 11.9x and EV/EBITDA of 10.3x and 9.6x respectively for FY12 and FY13. We are upgrading PLL to 'ACCUMULATE' with an increased target price of Rs180 (based on 12-mth fwd DCF).

Source : Equity Bulls

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