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Petronet LNG Ltd
Strong 3Q earnings driven by
volumes; raise FY11 EPS & PO
„3Q profit more than doubles as utilization rate up to 96%
3Q FY11 profit of Petronet LNG (PLNG) was up 105% YoY driven by jump in
volume and higher regas charge. Utilization rate rose sharply to 96% in 3Q FY11
from 80% in 2Q FY11 and 76% in 3Q FY10. Thus finally PLNG’s volumes have
surged benefitting from QoQ decline in KG D6 gas volume. PLNG’s 9M FY11
profit is up 35% YoY. We have raised PLNG’s FY11E EPS by 16% and expect a
47% YoY rise in FY11E profit now. We have also raised PLNG’s PO by 18% to
Rs78. Our revised PO still implies 40% potential downside. PLNG appears
expensive at 14.5-14.8x FY12-FY13E. We retain underperform rating on PLNG.
3Q profit up 105% YoY on volume surge & regas charge rise
PLNG’s 3Q net profit at Rs1.7bn was 105% YoY higher. The main driver of the
jump in 3Q earnings was a 26% YoY rise in regas volumes to 120tbtu (2.4mmt).
Thus, utilization rate on capacity of 10mmtpa is 96%. 3Q earnings were also
boosted by 10% YoY on higher regas charge on the low base of 3Q FY10. Higher
volumes and regas charge resulted in a 66% YoY jump in 3Q EBITDA.
Raise FY11E EPS by 16% and PO by 18% to Rs78/share
PLNG expanded its capacity to 10mmtpa from 6.5mmtpa in FY10. However,
utilization on expanded capacity was low due to KG D6 gas output start and its
ramp up to 60mmscmd by 4Q FY10. However, KG D6 gas output has declined to
52mmscmd now and ramp up to 80mmscmd appears unlikely for at least 12
months. This helped PLNG to operate at 96% utilization in 3Q FY11. Due to the
strong 3Q we have raised FY11 regas volumes and charge forecasts, which boost
FY11E EPS by 16%. Our price objective has also been raised by 18% to Rs78.
The upgrade is mainly due to assuming 16% ROE in the long term (lower ROE
assumed earlier) vis-à-vis 19-33% in the last 5 years. Fair value would be
Rs114/share if long term ROE of 20% is assumed.
Price objective basis & risk
Petronet LNG Ltd (POLNF)
Our DCF-based price objective of PLNG is Rs78/share. WACC used is 10.8pct. It
is based on the assumption that 1)PLNG gas volumes would rise from 7.7mmt in
FY10 to 10.5mmt by FY13 and 13.5mmt by FY15 2)PLNG regas charge is at
levels, which ensures ROE of over 20pct in FY11E-FY13E but is lower at 16-17%
thereafter. Kochi LNG terminal is assumed to start in FY13E at 2mmt and rise to
2.5mmt in FY15E. Regas charge, which was Rs24.8/mmbtu in FY10, is assumed
to be Rs31.5-32.2/mmbtu during FY11-FY14E and Rs28.2-56.2/mmbtu
thereafter. Upside risks are: 1) PLNG LNG volumes are higher than assumed by
us. This is possible if either (i) it ties up higher volumes under long term contracts,
or (ii) market can absorb more spot LNG than assumed by us, 2) PLNG can earn
regas charges higher than assumed by us, and 3) PLNG takes other business
initiatives, which add or have potential to add significant value. Downside risks to
our PO are: 1) PLNG volumes are lower than assumed by us. 2) PLNG regas
charges decline to levels lower than assumed by us, and 3) LNG price under its
existing 25-year take or pay contract rises so sharply (likely by 2013-14) that
there are not enough consumers to buy the LNG at that price
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