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Petronet LNG (PLNG.BO)
4Q: Another Strong Show; Raising TP to Rs155
4Q operationally in line; PAT ahead — PLNG’s 4Q PAT of Rs2.06bn was up 21% qoq
and 112% yoy, well ahead of our and consensus expectations. EBITDA at Rs3.51bn
was, however, in line with estimates, with lower interest expenses (refinancing of some
loans) and higher other income (one-offs) driving the positive surprise at the PAT level.
Capacity running at near full utilization — The strong 4Q performance was driven by
robust volume growth (regas volumes of 126 TBTUs during the quarter, up 5% qoq and
37% yoy), driven by a combination of lower domestic gas volumes and higher pipeline
transmission capacities, which drove better utilization of its regas capacity at Dahej
(regas volumes up qoq from 2.3 to 2.5 MMT in 4Q, annualizing at 10 MMTPA or 100%
of licensed capacity).
Strong visibility for FY12 earnings drives earnings upgrade — Besides the 7.5
MMTPA of long-term volumes from RasGas, PLNG has tied up (source: Reuters)
another c1.5 MMTPA of volumes for FY12E and FY13E (up from 1.1 MMTPA
announced in Jan), driven by strong demand from the industrial segment (esp. refiners)
and reduced availability of KG gas. We up our FY12E regas volume estimate from 10.0
MMT earlier to 10.5 MMT, the maximum we believe that the company can achieve
under the current circumstances at Dahej. This is the main driver of our 10% FY12E
earnings upgrade. We maintain our FY13E estimates at 11.0 MMT with contributions
from the greenfield Kochi terminal expected to commence during the year.
Raising TP to Rs155; maintain Buy — PLNG continues to remain our preferred nearterm
gas pick due to: (i) limited availability of domestic gas, (ii) strong industrial
demand and acceptance of high-cost LNG as alternatives (that are crude-linked)
remain more expensive, and (iii) pipeline capacities no longer being a constraint,
thereby enabling more potential gas consumers to be tapped. We maintain our
Buy/Low risk rating and increase our TP to Rs155 from Rs150 earlier, driven by our
earnings upgrade and as we roll forward our DCF to Mar-12E.
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 Rs155 is based on our DCF-based fair value estimate for Mar-
12E. 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 five years, long-term volumes of 16 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-thananticipated
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)
4Q: Another Strong Show; Raising TP to Rs155
4Q operationally in line; PAT ahead — PLNG’s 4Q PAT of Rs2.06bn was up 21% qoq
and 112% yoy, well ahead of our and consensus expectations. EBITDA at Rs3.51bn
was, however, in line with estimates, with lower interest expenses (refinancing of some
loans) and higher other income (one-offs) driving the positive surprise at the PAT level.
Capacity running at near full utilization — The strong 4Q performance was driven by
robust volume growth (regas volumes of 126 TBTUs during the quarter, up 5% qoq and
37% yoy), driven by a combination of lower domestic gas volumes and higher pipeline
transmission capacities, which drove better utilization of its regas capacity at Dahej
(regas volumes up qoq from 2.3 to 2.5 MMT in 4Q, annualizing at 10 MMTPA or 100%
of licensed capacity).
Strong visibility for FY12 earnings drives earnings upgrade — Besides the 7.5
MMTPA of long-term volumes from RasGas, PLNG has tied up (source: Reuters)
another c1.5 MMTPA of volumes for FY12E and FY13E (up from 1.1 MMTPA
announced in Jan), driven by strong demand from the industrial segment (esp. refiners)
and reduced availability of KG gas. We up our FY12E regas volume estimate from 10.0
MMT earlier to 10.5 MMT, the maximum we believe that the company can achieve
under the current circumstances at Dahej. This is the main driver of our 10% FY12E
earnings upgrade. We maintain our FY13E estimates at 11.0 MMT with contributions
from the greenfield Kochi terminal expected to commence during the year.
Raising TP to Rs155; maintain Buy — PLNG continues to remain our preferred nearterm
gas pick due to: (i) limited availability of domestic gas, (ii) strong industrial
demand and acceptance of high-cost LNG as alternatives (that are crude-linked)
remain more expensive, and (iii) pipeline capacities no longer being a constraint,
thereby enabling more potential gas consumers to be tapped. We maintain our
Buy/Low risk rating and increase our TP to Rs155 from Rs150 earlier, driven by our
earnings upgrade and as we roll forward our DCF to Mar-12E.
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 Rs155 is based on our DCF-based fair value estimate for Mar-
12E. 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 five years, long-term volumes of 16 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-thananticipated
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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