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Petronet LNG Ltd.
Overweight
PLNG.BO, PLNG IN
3QFY11: Robust volumes drive earnings beat; Maintain OW
• 3QFY11 result beats the street, maintain OW: Petronet LNG reported
3Q earnings of Rs1.7bn (up 30% sequentially), ahead of our and street
estimates, driven by robust volumes. We maintain our Overweight
rating, and raise our Sep-11 PT to Rs160, on higher volume growth
expectations.
• Volume growth robust: Volumes were up 20% sequentially, to
119.7TBTUs, as PLNG was able to continue bringing in spot LNG
cargos, with the KG-D6 production cap continuing. In addition, the
commissioning of GAIL’s new pipeline systems should enable PLNG to
continue to bring in additional volumes – we adjust our volume
estimates for FY11/12 higher, to 8.5/9.5 mmtpa respectively.
• Additional medium-term supplies tied up: PLNG has signed a 2-year
contract to import 1.1mmtpa of LNG in addition to the current 7.5mmtpa
long-term supply. The Kochi terminal remains on track, and we expect
volumes to flow from FY13.
• Margins aided by marketing income: PLNG margins showed an
increase this quarter, as the company is able to levy additional marketing
margins on its spot volumes. We estimate marketing margins in the
range of Rs8-12/mmbtu on spot volumes.
• Stock impact/earnings changes: We expect continuing volume strength
to underpin stock performance. We adjust our FY11/12 earnings ~15-
18% to capture PLNG’s higher volume growth trajectory.
• Maintain Overweight: We maintain our Overweight rating, and adjust
our Sep-11 price target to Rs160. Our PT is 3 stage DCF based, with 8%
interim growth followed by a 3% terminal growth rate. Key risks to our
call are project delays at Kochi, and lower than projected LNG volumes.
Our Sep-11 PT is at Rs 160/share based on DCF fair value estimate.
The DCF estimate assumes 3% terminal growth. We assume a beta of
1.1, risk-free rate of 8%, market risk premium of 6.0%, and cost of debt
of 9.5% to arrive at a WACC of 12.1%.
Our PT implies an FY12 P/E of 15.4x .We estimate a 19% earnings
CAGR over FY10-13, as PLNG will continue to make up the shortfall
between gas demand and domestic supply in India. The commissioning
of the new terminal in Kochi will garner a new market with attractive
margins. Key risks to our view are lower than expected volumes and
project delays at Kochi.
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