Petronet LNG - Better-than-expected results; valuation concerns persist.:: Kotak Sec

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Petronet LNG (PLNG)
Energy
Better-than-expected results; valuation concerns persist. PLNG reported 2QFY11
net income at `1.3 bn (+17.7% qoq and +8.7% yoy) versus our expected `1.2 bn. The
positive variance was led by (1) higher-than-expected re-gasification volumes at 99.8 tn
BTU versus our estimate of 96.5 tn BTU, (2) lower other expenditure and (3) higher
other income. Re-gasification tariffs came in at `30.4/mn BTU versus our expected
`31.3/mn BTU. We maintain our SELL rating on the stock given potential downside of
26% to our 12-month DCF-based target price of `90.


Better-than-expected results; volumes 12% lower yoy
PLNG reported 2QFY11 net income at `1.3 bn (+17.7% qoq and +8.7% yoy) versus our expected
`1.2 bn. 2QFY11 results were better versus expectations due to (1) higher-than-expected volumes
at 99.8 tn BTU (+5% qoq and -12% yoy) versus our estimate of 96.5 tn BTU, (2) lower other
expenditure at `261 mn versus our estimate of `350 mn and (3) higher other income of `186 mn
versus our estimate of `150 mn. However, the positive impact was partially contained by lowerthan-
expected re-gasification tariffs at `30.4/mn BTU versus our estimate of `31.3/mn BTU
(`30.8/mn BTU in 1QFY11).
Surplus LNG at Dahej terminal reflects weak demand; restart of Panna-Mukta may add to woes
As per an industry journal, slackening demand from power and fertilizer sector during the heavy
monsoon season has resulted in excess LNG in four storage tanks at Dahej LNG re-gasification
terminal. Although the monsoons have subsided, we do not expect a sharp improvement in the
demand-supply balance given restart of gas production from Panna-Mukta fields in the current
week. Panna-Mukta fields were producing over 6 mcm/d of gas before the unexpected shutdown
in July 2010. The restart of Panna-Mukta field will likely rebalance the supply-demand scenario in
favor of domestic gas, as end-consumers will revert back to Panna-Mukta gas supply from spot
LNG imports.
Fine-tuned earnings; maintain SELL with a revised target price of `90
We have fine-tuned our EPS estimates for FY2011-13E to `6.9 (+6.3%), `8.3 (+4.8%) and `8.7
(+1.8%) to reflect (1) 2QFY11 earnings, (2) stronger rupee (+ve impact), (3) lower other
expenditure and (4) other minor changes. We assume total volumes (contracted plus spot) at 8.2
mn tons for FY2011E, 9.6 mn tons for FY2012E and 11 mn tons for FY2013E. We model PLNG’s
re-gasification tariff to increase by 5% in each year in FY2011-13E and remain flat thereafter. We
maintain our SELL rating on the stock with a revised 12-month DCF-based target price of `90 (`88
previously) noting (1) the stock offers 26% downside to our 12-month target price and (2) the
stock is trading at 15X FY2012E EPS.