Meeting the gas shortfall: Petronet LNG is likely to be the largest
contributor to meeting the shortfall in India’s gas demand and domestic
supply, with imports of nearly 60mmscmd of LNG by FY15E. LNG will
need to supplement domestic gas as infrastructure rolls out to new
demand centers; favorable global LNG supply dynamics should be a
major contributor to increasing LNG acceptance. Upgrade to OW.
• Demand outlook positive: Our positive view on the long-term viability
of LNG in India’s energy basket stems from the better economics of
LNG vis-à-vis liquid fuels which currently account for 36% of India’s
primary energy consumption. Southern India, with its current lack of gas
infrastructure, will be a key geographical region for growth in demand,
particularly for LNG as the landed cost of domestic gas in these areas
will make LNG competitive.
• LNG supply dynamics are supportive: Current oversupply in the LNG
market with the rise of shale gas production in the US is favorable for
LNG economics, and we believe India will be able to source LNG
competitively in the medium term.
• Kochi terminal will be a big value driver: A virtually captive LNG
market in Southern India with remunerative re-gas tariffs should create
significant value for Petronet LNG. We expect near-term news flow on
increased spot supplies to be a catalyst for stock performance.
• Price target, valuation, key risks: We raise our DCF-based PT
significantly to Rs145, incorporating a more benign demand-supply
view. Easing of infrastructure constraints, higher re-gas tariffs for Kochi,
and a roll over to Sep-11 which underpins our new PT and Overweight
rating on the stock. Key risks to our view are project delays at Kochi and
lower-than-projected LNG volumes.
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