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Petronet LNG (PLNG.BO)
Blockbuster Quarter; Raise TP to Rs150
Blockbuster quarter — PLNG reported a PAT of Rs1.71bn, up 105% yoy and
30% qoq and well ahead of our and consensus estimates. Profits were boosted by
a sharp increase in regas volumes to 111 TBTU (32% yoy, 12% qoq), as lower
availability of domestic gas led to an increase in LNG imports in the country. We
raise our TP to Rs150 from Rs135 on the back of our higher near-term volume
forecasts and reiterate our Buy rating.
3Q boosted by higher spot volumes — The company bought ~5 spot cargoes in
3Q vs. ~2 in 2Q (earns mktg margins on these) and provided regassification
services (i.e., only regas charges, no mktg margins) for another ~4 (nil in 2Q).
Better-than-expected volumes and pricing power (translating into strong mktg
margins) were the main drivers of the excellent results reported by the company.
Announces new contracts for FY12-13 — In addition, PLNG has also
announced that it will source additional 1.1 MMTPA of LNG for each of FY12 and
FY13 for supply to refiners. Not only is this positive for utilization of its regas
capacities but the company is also expected to earn mktg margin on these
volumes, boosting profitability further.
Raising TP to Rs150 — We roll fwd our DCF to Sep-11E from Mar-11E earlier
and increase our near-term volume forecasts to 8.4/10.0/11.0 MMTPA for
FY11/12/13E (vs. 8.1/9.5/10.5 earlier) on the back of the new contracts announced
by the company. Our FY12-13E earnings go up 8-11% on the back of this.
Best-placed gas stock in the near term — PLNG will continue to benefit from
limited availability of domestic gas in the nea -term, with KG gas production having
reportedly declined from ~58-59 mmscmd earlier to ~52-53 mmscmd currently and
the continued lack of clarity on its ramp-up timelines. This makes PLNG the bestplaced
gas stock in the near term. Reiterate Buy.
New Target Price of Rs150
Our new target price of Rs150 is based on our Sep-11E DCF valuation. In our
DCF analysis, we use explicit forecasts for 6 years, long-term volumes of 16.5
MMTPA, a terminal growth rate of 3% and a WACC of 10.8%. Our earnings
over FY11-13E increase by 8-11% driven by our higher volume forecasts.
Petronet LNG
Company description
Petronet LNG was promoted as a joint venture of four state-owned oil & gas
companies (GAIL, IOC, ONGC, and BPCL), which together hold 50% of its
equity. Gaz De France owns 10% of PLNG's equity. PLNG runs a 10 MMTPA
LNG receiving and regassification terminal at Dahej on the western coast of
India. It is also setting up another greenfield terminal at Kochi with capacity of
2.5 MMTPA by 2012. Regassified LNG from the Dahej terminal has access to
the developed gas markets of Gujarat and, through GAIL's Dahej-Vijaipur
pipeline, its gas is piped to the consumption centers linked to GAIL's HBJ
pipeline.
Investment strategy
We rate PLNG shares Buy / Low Risk (1L). PLNG earns a fixed, steady
regassification charge and has de-risked its business model from commodity
cycles. We remain positive on the long-term fundamentals of the stock because
of: (i) expected upsurge in gas demand, unlikely to be fully met through
domestic sources, (ii) increase in spot volumes as new pipelines capacities
come on stream, and (iii) untapped demand from industrial users for gas over
naphtha/fuel oil given better economics. Besides, with recent developments
such as GAIL signing a 3-yr deal to purchase 0.5 MMTPA of LNG, Reliance's
KG gas ramp up being delayed further, possible increase in demand from
Reliance's refineries, and GAIL's pipeline expansions coming on stream are
positive for Petronet's volumes in the near/medium-term volumes, and the
current stock price makes risk-reward attractive.
Valuation
Our target price of Rs150 is based on our DCF-based fair value estimate for
Sep-11E. We use a DCF-based valuation, as we think it captures the value of
the projects over their lifetime, especially given that PLNG's near-term cash
flow is affected by its aggressive expansion. In our DCF analysis, we use
explicit forecasts for six years, long-term volumes of 16.5 MMTPA, a terminal
growth rate of 3%, and a WACC of 10.8% (based on risk-free rate of 8.0%, cost
of debt of 9.5%, target D/E of 1:1, beta of 1.2x, market risk premium of 6.0%).
Risks
We rate PLNG shares Low Risk as opposed to Medium Risk as suggested by
our quantitative risk-rating system, which tracks 260-day historical share price
volatility. We believe that with visibility on near-term volumes increasing and
capex plans on schedule, risks for the stock stand mitigated. Key downside
risks which could prevent the shares from reaching our target price include: 1)
continued high prices of LNG making it difficult for PLNG to sign a long-term
contract, 2) quicker-than-anticipated ramp-up of production of cheaper-priced
gas from domestic fields, 3) delay in expansion of pipeline infrastructure which
could negatively impact PLNG's volumes, and 4) any delays in the completion
and commissioning of the Kochi terminal.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Petronet LNG (PLNG.BO)
Blockbuster Quarter; Raise TP to Rs150
Blockbuster quarter — PLNG reported a PAT of Rs1.71bn, up 105% yoy and
30% qoq and well ahead of our and consensus estimates. Profits were boosted by
a sharp increase in regas volumes to 111 TBTU (32% yoy, 12% qoq), as lower
availability of domestic gas led to an increase in LNG imports in the country. We
raise our TP to Rs150 from Rs135 on the back of our higher near-term volume
forecasts and reiterate our Buy rating.
3Q boosted by higher spot volumes — The company bought ~5 spot cargoes in
3Q vs. ~2 in 2Q (earns mktg margins on these) and provided regassification
services (i.e., only regas charges, no mktg margins) for another ~4 (nil in 2Q).
Better-than-expected volumes and pricing power (translating into strong mktg
margins) were the main drivers of the excellent results reported by the company.
Announces new contracts for FY12-13 — In addition, PLNG has also
announced that it will source additional 1.1 MMTPA of LNG for each of FY12 and
FY13 for supply to refiners. Not only is this positive for utilization of its regas
capacities but the company is also expected to earn mktg margin on these
volumes, boosting profitability further.
Raising TP to Rs150 — We roll fwd our DCF to Sep-11E from Mar-11E earlier
and increase our near-term volume forecasts to 8.4/10.0/11.0 MMTPA for
FY11/12/13E (vs. 8.1/9.5/10.5 earlier) on the back of the new contracts announced
by the company. Our FY12-13E earnings go up 8-11% on the back of this.
Best-placed gas stock in the near term — PLNG will continue to benefit from
limited availability of domestic gas in the nea -term, with KG gas production having
reportedly declined from ~58-59 mmscmd earlier to ~52-53 mmscmd currently and
the continued lack of clarity on its ramp-up timelines. This makes PLNG the bestplaced
gas stock in the near term. Reiterate Buy.
New Target Price of Rs150
Our new target price of Rs150 is based on our Sep-11E DCF valuation. In our
DCF analysis, we use explicit forecasts for 6 years, long-term volumes of 16.5
MMTPA, a terminal growth rate of 3% and a WACC of 10.8%. Our earnings
over FY11-13E increase by 8-11% driven by our higher volume forecasts.
Petronet LNG
Company description
Petronet LNG was promoted as a joint venture of four state-owned oil & gas
companies (GAIL, IOC, ONGC, and BPCL), which together hold 50% of its
equity. Gaz De France owns 10% of PLNG's equity. PLNG runs a 10 MMTPA
LNG receiving and regassification terminal at Dahej on the western coast of
India. It is also setting up another greenfield terminal at Kochi with capacity of
2.5 MMTPA by 2012. Regassified LNG from the Dahej terminal has access to
the developed gas markets of Gujarat and, through GAIL's Dahej-Vijaipur
pipeline, its gas is piped to the consumption centers linked to GAIL's HBJ
pipeline.
Investment strategy
We rate PLNG shares Buy / Low Risk (1L). PLNG earns a fixed, steady
regassification charge and has de-risked its business model from commodity
cycles. We remain positive on the long-term fundamentals of the stock because
of: (i) expected upsurge in gas demand, unlikely to be fully met through
domestic sources, (ii) increase in spot volumes as new pipelines capacities
come on stream, and (iii) untapped demand from industrial users for gas over
naphtha/fuel oil given better economics. Besides, with recent developments
such as GAIL signing a 3-yr deal to purchase 0.5 MMTPA of LNG, Reliance's
KG gas ramp up being delayed further, possible increase in demand from
Reliance's refineries, and GAIL's pipeline expansions coming on stream are
positive for Petronet's volumes in the near/medium-term volumes, and the
current stock price makes risk-reward attractive.
Valuation
Our target price of Rs150 is based on our DCF-based fair value estimate for
Sep-11E. We use a DCF-based valuation, as we think it captures the value of
the projects over their lifetime, especially given that PLNG's near-term cash
flow is affected by its aggressive expansion. In our DCF analysis, we use
explicit forecasts for six years, long-term volumes of 16.5 MMTPA, a terminal
growth rate of 3%, and a WACC of 10.8% (based on risk-free rate of 8.0%, cost
of debt of 9.5%, target D/E of 1:1, beta of 1.2x, market risk premium of 6.0%).
Risks
We rate PLNG shares Low Risk as opposed to Medium Risk as suggested by
our quantitative risk-rating system, which tracks 260-day historical share price
volatility. We believe that with visibility on near-term volumes increasing and
capex plans on schedule, risks for the stock stand mitigated. Key downside
risks which could prevent the shares from reaching our target price include: 1)
continued high prices of LNG making it difficult for PLNG to sign a long-term
contract, 2) quicker-than-anticipated ramp-up of production of cheaper-priced
gas from domestic fields, 3) delay in expansion of pipeline infrastructure which
could negatively impact PLNG's volumes, and 4) any delays in the completion
and commissioning of the Kochi terminal.
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