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UBS Investment Research
Petronet LNG
Slight sentimental negative on RIL BP JV
BP and RIL to participate across the gas value chain in India
RIL and BP announced a partnership of BP taking 30% stake in 23 oil and gas
production sharing contracts, including KG-D6 for US$7.2bn and 50-50 JV for
sourcing/marketing gas in India (we read LNG, pipelines, other downstream infra).
RIL management highlighted BP has strong deepwater expertise, can be
technology partner and has presence in entire gas value chain. Deal is subject to
GoI, regulatory and other approvals. Payment to RIL will be in stages in FY12E.
Too early to gauge impact on Petronet LNG; very long term deal
RIL-BP deal is subject to various approvals and it may be early to gauge how this
JV will impact gas market for Petronet LNG (PLNG) in India. While technology
and BP expertise may expand potential for production ramp-up, new discoveries,
competition in LNG; it could also in fact help strengthen the LNG market in India.
Medium term catalysts like GAIL pipelines, higher spot cargoes
Medium term supply constraints, start of new pipelines by GAIL, higher visibility
on term contracts (7.5 MMTPA + 1.1 MMTPA), higher spot cargoes (5-7 in Q4
FY11) are catalysts. Revising up estimates by 9% for FY11 on spot cargoes and
lowering FY13 EPS by 4.1% on Kochi start later by Sept-12.
Valuation: Slight sentimental negative: maintain Buy and PT of Rs 150
PLNG’s valuations of 13.4x FY12E PE and 2.7x FY12E P/BV compare to the peer
medians of 15.7x and 2.4x. We derive our price target of Rs 150/share from a
DCF-based methodology and explicitly forecast long-term valuation drivers using
UBS’s VCAM tool. We assume a WACC of 10.43%.
Petronet LNG
Petronet LNG (PLNG) is a joint venture company set up by the government of
India to establish LNG import and regasification facilities. It is primarily a
converter or tolling company. Anticipating the larger role of natural gas supply
in meeting the energy needs of Indian consumers, the Indian government
approved on 4 July 1997 the formation of a joint venture with equity
participation from ONGC, GAIL, Indian Oil, and BPCL at a 12.5% stake for
each. GDF (also known as Gaz de France), which holds another 10% of the
company, is also a strategic partner of the company.
Statement of Risk
Petronet LNG buys LNG on long- and short-term contracts, regasifies it and
sells it to the off-takers. Any increase in the input LNG prices due to delay in
liquefaction projects would lead to an increase in the R-LNG ex-terminal prices
and could pose a risk to its utilisation rates or the regasification margins. The
company is expanding its existing capacity and also planning a new terminal.
Both of these involve execution risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Petronet LNG
Slight sentimental negative on RIL BP JV
BP and RIL to participate across the gas value chain in India
RIL and BP announced a partnership of BP taking 30% stake in 23 oil and gas
production sharing contracts, including KG-D6 for US$7.2bn and 50-50 JV for
sourcing/marketing gas in India (we read LNG, pipelines, other downstream infra).
RIL management highlighted BP has strong deepwater expertise, can be
technology partner and has presence in entire gas value chain. Deal is subject to
GoI, regulatory and other approvals. Payment to RIL will be in stages in FY12E.
Too early to gauge impact on Petronet LNG; very long term deal
RIL-BP deal is subject to various approvals and it may be early to gauge how this
JV will impact gas market for Petronet LNG (PLNG) in India. While technology
and BP expertise may expand potential for production ramp-up, new discoveries,
competition in LNG; it could also in fact help strengthen the LNG market in India.
Medium term catalysts like GAIL pipelines, higher spot cargoes
Medium term supply constraints, start of new pipelines by GAIL, higher visibility
on term contracts (7.5 MMTPA + 1.1 MMTPA), higher spot cargoes (5-7 in Q4
FY11) are catalysts. Revising up estimates by 9% for FY11 on spot cargoes and
lowering FY13 EPS by 4.1% on Kochi start later by Sept-12.
Valuation: Slight sentimental negative: maintain Buy and PT of Rs 150
PLNG’s valuations of 13.4x FY12E PE and 2.7x FY12E P/BV compare to the peer
medians of 15.7x and 2.4x. We derive our price target of Rs 150/share from a
DCF-based methodology and explicitly forecast long-term valuation drivers using
UBS’s VCAM tool. We assume a WACC of 10.43%.
Petronet LNG
Petronet LNG (PLNG) is a joint venture company set up by the government of
India to establish LNG import and regasification facilities. It is primarily a
converter or tolling company. Anticipating the larger role of natural gas supply
in meeting the energy needs of Indian consumers, the Indian government
approved on 4 July 1997 the formation of a joint venture with equity
participation from ONGC, GAIL, Indian Oil, and BPCL at a 12.5% stake for
each. GDF (also known as Gaz de France), which holds another 10% of the
company, is also a strategic partner of the company.
Statement of Risk
Petronet LNG buys LNG on long- and short-term contracts, regasifies it and
sells it to the off-takers. Any increase in the input LNG prices due to delay in
liquefaction projects would lead to an increase in the R-LNG ex-terminal prices
and could pose a risk to its utilisation rates or the regasification margins. The
company is expanding its existing capacity and also planning a new terminal.
Both of these involve execution risk.
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