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For 2QFY2011, Petronet LNG’s (Petronet) performance was marginally lower
than our expectation on the top line front, while it was better than expected on the
EBITDA and bottom-line fronts. The company reported a 10.2% yoy decline in
revenue to `3,058cr (`3,407cr), which was lower than our expectation of
`3,072cr on account of lower-than-expected volumes of 102.7TBTUs. Volume
processed during the quarter stood at 99.8TBUs, registering a 12.4% yoy decline
and 4.9% qoq growth. Gross profit grew by 5.3% yoy to `303cr (`288cr) and was
lower than our expectation of `310cr. We recommend Neutral on the stock.
Performance led by lower opex and higher other income: During 2QFY2011, net
re-gasification margins rose by 20% yoy to `30.4/mmbtu (`25.3/mmbtu) because
of absence of marketing loss on spot volumes (as in 2QFY2010) and lower
internal consumption. Other operating expenditure, which fell by 12.8% yoy to
`26.1cr (`29.9cr), and higher-than-expected other income helped Petronet to
report better bottom-line performance. The bottom line registered an 8.7% yoy
growth to `131cr (`121cr) against our expectation of `119cr.
Outlook and valuation: We have marginally revised our EPS estimates for
FY2011E and FY2012E to `6.8 (up 7.7%) and `8.5 (up 2.4%), respectively,
adjusting for higher operating efficiencies (lower other expenditure) and stronger
rupee. However, on the valuation front, after the recent surge in the stock price,
we believe valuations have captured in all the business positives. Upsides from the
current levels will be dependent on the tie-up of additional volume for the
unutilised capacity. Valuation at 13.9x FY2012E EPS is no more demanding at the
current juncture. Hence, we downgrade the stock from Accumulate to Neutral.
We assign a DCF-based fair value of `121/share for the stock.
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