PETRONET LNG: Strong 2QFY11 results driven by spot cargos :: Motilal Oswal

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PETRONET LNG: Strong 2QFY11 results driven by spot cargos; Volumes at 30mmscmd, expect 40mmscmd in FY12

-          Petronet LNG (PLNG IN, Mkt Cap US$2b, CMP Rs122, Not Rated) reported strong 2QFY11 PAT at Rs1.3b (up 9% YoY and 18% QoQ) driven by increase in spot cargos.

-          Net sales stood at Rs30.6b (down 10% YoY, up 21% QoQ). YoY decline in net sales was led by 12% YoY decline in volumes while large QoQ increase was due to 17% increase in average gas price at US$6/mmbtu and 3% increase in volumes.

-          PMT shutdown partially helps 2QFY11: In 2QFY11, the PMT fields were shutdown for maintenance and some spot cargos were imported through Petronet to compensate the volumes of PMT. Petronet imported 3 spot cargos owing to the partial shutdown of PMT in 2QFY11.

-          Gas sales volume stood at 99.8tbtu (1.98mmt/30mmscmd) v/s 113tbtu (2.26mmt/35mmscmd) in 2QFY10 and 95.2tbtu (1.92mmt/29mmscmd) in 1QFY11. Petronet has signed back-to-back customers of 7.5mmtpa yielding Rs32/mmbtu of regasification charges.

-          Gross margins in 2QFY11 stood at Rs30.4/mmbtu (v/s Rs25.4/mmbtu in 2QFY10 and Rs30.7/mmbtu in 1QFY11).

-          Loss in regasification volumes: In 1QFY11, GSPC imported cargos through Petronet; however, in 2QFY11 the order was diverted to Shell’s terminal in Hazira, resulting in loss of regasification volumes. Regasification volumes for 2QFY11 stood at 0.3tbtu (0.01mmtpa) v/s 5.7tbtu (0.1mmtpa) in 1QFY11.

-          Future outlook positive: The managements opines that huge gas demand in the country along with subdued domestic gas supply will help Petronet to ramp up to full capacity in FY12.

-          Triggers: (1) Long-term tie-up for additional gas; (2) Progress on Kochi terminal; (3) Valuation of the ADB stake sale; (4) Short-term regasification charges in coming quarters, and 5) Increase in regasification charges in January 2011.

-          Key assumptions: (1) We model 8.5mmtpa (33mmscmd) of gas sales in FY11 and 10mmtpa (40mmscmd) in FY12. (2) We assume 5% annual escalation in regasification charges (similar to previous years) and Rs5/mmbtu as marketing margin on short-term contracts.

-          Valuation and view: The stock trades at 12.7x FY12E EPS of Rs9.6. Not Rated.