Petronet LNG: 2QFY11: Beats the street :: JPMorgan

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Petronet LNG Ltd. Overweight
PLNG.BO, PLNG IN
2QFY11: Beats the street



• 2QFY11 result beats the street, maintain OW: Petronet LNG reported
2Q earnings of Rs1.3bn (up 18% sequentially), ahead of our and street
estimates, driven by robust volumes and stable (q/q) margins. We
maintain our Overweight rating.
• Volume growth robust: Volumes were up 11% sequentially, as PLNG
was able to bring in increased spot cargos - the KG-D6 production cap
and a shutdown at the PMT fields off the western coast were the key
drivers. While PMT production is to recommence shortly, the
commissioning of GAIL’s new pipeline systems would enable PLNG to
continue to bring in additional volumes.
• Margins aided by marketing income: PLNG has been hiking regas
margins 5% every year. In 2QFY11, operating profits were boosted by
marketing margins on spot cargos.
• Capacity expansion update: Management stated that progress at the
Kochi LNG terminal remained on track, with ~60% completion thus far.
The company expects the terminal to be commissioned in 1QCY12.
Capacity at the Dahej terminal is also being expanded with the addition
of a new jetty.
• Stock impact/earnings changes: While the stock has softened post
results, particularly on the news of PMT production recommencement,
we expect continuing volume strength to underpin stock performance.
We adjust our FY12 earnings ~15% post management guidance on
interest capitalization. This however does not affect our DCF based PT.
• Maintain Overweight: We maintain our Overweight rating, and Sep-11
price target of Rs 145. Our PT is 3 stage DCF based, with 8% interim
growth followed by a 3% terminal growth rate. We assume a beta of 1.1,
risk-free rate of 8%, market risk premium of 6.0%, and cost of debt of
9.5% to arrive at a WACC of 12.1%. Key risks to our call are project
delays at Kochi, and lower than projected LNG volumes.