Petronet LNG Results above expectation; Maintain BUY:: Emkay

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Petronet LNG

Results above expectation; Maintain BUY

BUY

CMP: Rs 132                                       Target Price: Rs 156

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n     Results were above estimate, mainly due to higher volume growth of 26% to 119.7tbtu during the quarter

n     EBIDTA margin expanded by 20bps YoY to 9.5% (60bps QoQ), mainly on account of higher spot volumes offtake during the quarter

n     Signed medium term contract of 1.1mmtpa LNG, provides further upside to long term volumes from 7.5mmtpa to 8.6mmtpa

n     Rise in LNG import and re-gasification charges to help ROE increase from 19% to 22.4% by FY13E, maintain BUY with PT of Rs.156

Highlights of the results

Petronet LNG reported results which were above our and street expectation. Revenue

for the quarter was at Rs.36bn (against our expectation of Rs.31bn), growth of 62%

YoY, mainly due to higher offtake of both firm and spot volumes. EBITDA during the

quarter was at Rs.3.4bn (against our estimate of Rs.2.7bn), growth of 66%, YoY.

EBIDTA margin has expanded by 20bps YoY to 9.5% (60bps QoQ), on account of the

higher spot volumes offtake where company earns the marketing margin. During the

quarter the company reported net profit of Rs.1.7bn, (as against our estimate of

Rs.1.3bn), growth of 105% on YoY basis.

Higher growth of both firm and spot volume drives the revenue and

profitability in Q3FY11

Revenue has increased by 62% from Rs.22bn in Q3FY10 to Rs.36bn in Q3 FY11, due

to higher growth of both firm (~100tbtu) and spot (~19.7tbtu) volume drives the revenue

and profitability. During the quarter volumes have increased by 26% to 119.7tbtu (+20%

QoQ), mainly on account of short fall of 5-7mmscmd from domestic source. We expect

volume would further increase in the future as domestic natural gas supply continues to

fall short to meet the growing demand. We have revised upward our volume assumption

from 8mmtpa to 8.5mmtpa in FY11E and 8.7mmtpa to 9.4mmtpa in FY12E.

Margin to expand by 20bps to 9.5%

EBIDTA margin has expanded by 20bps YoY to 9.5% (60bps QoQ), on account of the

higher spot volumes offtake of 19.7tbtu where company earns the marketing margin of

$0.4/mmbtu.

Additional 1.1mmtpa of LNG contracted for next two years

PLNG has signed a contract of additional 1.1mmtpa of LNG for next two years (FY12

and FY13). Considering the additional volume the total firm volume stands at 8.6mmtpa

from earlier of 7.5mmtpa from Ras-gas. This would help to improve the capacity

utilisation at the Dahej terminal, resulting into higher volumes, revenue and profitability

in the coming quarters.

Outlook and Valuation

We expect volume growth would sustain in the coming quarter, as domestic natural gas

supply continues to fall short to meet the growing demand. We have positive bias on

Petronet LNG, given the huge demand for imported LNG in the domestic market, expected

increase in re-gasification charges, improvement in operating margin and improvement in

return ratios. Currently, stock trades at 15x FY12E EPS and 3.1x P/BV, we maintain BUY

rating on Petronet LNG with PT of Rs.156.