Visit http://indiaer.blogspot.com/ for complete details EARNINGS REVIEW
Petronet LNG (PLNG.BO)
Sell
In line with expectations: Likely LNG inventory building up; Sell
What surprised us
Petronet LNG (PLNG) reported 2QFY11 net profit of Rs1.31 bn, up 8.7% yoy
despite lower sales volumes (down 12% yoy), owing to an increase in regas
charges in Jan 2010. The results were in line with our estimates.
Although four spot LNG cargoes came in this quarter vs. zero in 1Q, the
sales volume did not increase much qoq, likely reflecting inventory buildup,
in our view.
We believe PLNG’s 2Q re-gas volumes were significantly supported by the
unscheduled shutdown of gas production from Panna Mukta and Tapti (PMT)
fields in western offshore, which led to gas supply shortage and hence
increased imports of LNG. With the PMT production likely to resume this
week, the spot cargo volumes for PLNG may be adversely affected going
forward, in our view. Moreover, we believe the likely inventory of LNG runs
price risk for the company as well as potential extra charges for delaying
delivery of further cargoes if inventories do not clear soon.
What to do with the stock
Structurally, we continue to like the domestic natural gas reserves theme
over imported LNG at oil-linked prices. Moreover, LNG being the gas of
last resort and demand being price-sensitive, timely roll-out of pipelines
remains critical for PLNG. Given our forecasts of rising spot LNG prices,
we believe LNG terminals will face sluggish utilization over medium term.
We reiterate Sell on PLNG with 12-m DCF-based TP of Rs100 (potential
downside 17%). The stock trades at 15.5X FY12E P/E against historical
trading band of 6X-17X. Key risk: Delay in D-6 ramp-up beyond FY12E
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