PETRONET LNG Robust results; triggers remain :: Edelweiss

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􀂄 Numbers in line with expectations; jump in EBITDA boosts earnings
In Q2FY11, Petronet LNG (PLNG) reported net revenue of INR 30.6 bn, marginally
ahead of our expectation of INR 29.9 bn. Total regasification volumes processed
during the quarter stood at 1.92 MMT (up 5% Q-o-Q due to higher long term
volumes but down 12% Y-o-Y due to lower spot volumes). EBITDA, at INR 2.7 bn,
jumped 7.1% Y-o-Y and 9.7% Q-o-Q due to higher re-gasification charges (Y-o-Y),
absence of losses from spot gas trading (Y-o-Y), lower internal consumption (Y-o-Y
and Q-o-Q), higher re-gas volumes (Q-o-Q), and lower employee expenses (Q-o-
Q). PAT, at INR 1.31 bn, was slightly ahead of our estimate, primarily due to
higher EBITDA (Y-o-Y and Q-o-Q) and other income (Q-o-Q) at INR 186 mn.
Regasification charges in Q2FY11 were steady at INR 31.76/mmbtu, with the
contribution margin being USD 0.65/mmbtu out of net realisation of USD
6.59/mmbtu.
􀂄 Higher sales from long-term supplies; spot volumes at ~0.1 MMT
LNG processed from long-term contracts continued broadly at the contracted rate
(7.5 MMTPA or 1.875 MMT/qtr). Long-term volumes during Q2FY11 were at 1.83
MMT against 1.71 MMT in Q1FY11. In addition to long-term contracts, PLNG
processed two third party spot cargoes during the quarter (aided by PMT
shutdown) amounting to volumes of ~0.1 MMT. One of the spot cargoes was
bought by PLNG itself while the other was a third-party spot cargo. PLNG’s
management has indicated that going forward, the outlook for spot cargoes
remains bright with ~0.15 MMT of spot volumes booked in October itself including
spot cargoes imported by GAIL and GSPC.
􀂄 Outlook and valuations: Triggers remain; maintain ‘BUY’
We are rolling forward our valuations from March 2011 to March 2012 with the fair
value of PLNG pegged at INR 135/share. Upsides to our fair value are likely from
valuation of the Dahej port (~INR 7/share) and possiblility of the Section 80IA tax
benefit coming through (~INR 12-14/share), which we believe will become clear
by March–June, 2011. Going forward, we expect visibility of growth in the
company’s earnings to come from: (a) tying up of additional long-term/medium
term supplies; (b) faster pick up of spot volumes with RIL capping its gas
production from KG-D6 field; (c) completion of GAIL’s pipeline by March 2011;
and (d) commissioning of Kochi LNG terminal by FY13. At INR 122, PLNG is
trading at P/E of 18.0x FY11E EPS and 16.4x FY12E EPS. We maintain ‘BUY’ on
the stock and rate it ‘Sector Outperformer’ on relative return basis.