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Petronet LNG (PLNG)
Energy
Grand plans but grim reality. We see the recent plans of PLNG to (1) expand the
capacity of its Dahej terminal to 18 mtpa and (2) set up another LNG terminal on the
east coast as exacerbating the current situation of excessive infrastructure with low
upstream security. We foresee under-utilization in India’s existing LNG capacity and
believe that (1) the recent spike in spot LNG prices and (2) India’s inability to tie-up
long-term LNG will compound the problems. We retain our SELL rating on Petronet
LNG with a target price of `100.
Building more LNG capacity may not be the right path
We are not too enthused by PLNG’s plan to enhance its LNG capacity given our concerns on
acceptability of high-priced LNG in India. PLNG has announced its plans to (1) increase capacity of
its Dahej terminal to 18 mtpa by FY2015E from 10.5 mtpa currently and (2) set up a new terminal
on the east coast. We do not believe that higher imports of LNG will help in meeting the shortfall
of domestic gas given (1) likely low acceptability of high-priced LNG by power and fertilizer
sectors, (2) limited incremental demand from other sectors and (3) connectivity issues, which will
prevent high usage from highly-scattered industrial units in India. Exhibit 1 gives a comparative
analysis of the cost of power based on different fuels (coal, domestic natural gas, imported LNG
and naphtha).
Who will buy so much LNG?
We are perplexed by the enthusiasm surrounding the LNG business in India in light of its limited
acceptability by bulk consumers like the power and fertilizer sectors. Some power plants have
already abandoned their plans based on imported LNG (see our note titled No gas; only pipelines
and terminals dated March 29, 2011). We highlight that India would have an LNG import capacity
of 24 mtpa by end-CY2012E (see Exhibit 2) versus current imports of 10.7 mtpa (February 2011
data annualized). This would mean that India would have to consume an additional 13 mtpa (~50
mcm/d) of imported LNG with likely limited consumption from the power and fertilizer sectors. We
find such a scenario extremely difficult in light of issues highlighted above.
Guidance for FY2012E revenues and volumes lower versus our estimates; Maintain SELL
PLNG has guided for FY2012E revenues at US$4 bn and re-gasification volumes at 9.7 mn tons.
This is modestly below our estimates at US$4.6 bn and 10 mn tons, respectively (see Exhibit 3).
We maintain our SELL rating on PLNG noting (1) potential downside of 20% to our target price of
`100 and (2) risk to our volumes assumptions in light of current high spot LNG prices
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Petronet LNG (PLNG)
Energy
Grand plans but grim reality. We see the recent plans of PLNG to (1) expand the
capacity of its Dahej terminal to 18 mtpa and (2) set up another LNG terminal on the
east coast as exacerbating the current situation of excessive infrastructure with low
upstream security. We foresee under-utilization in India’s existing LNG capacity and
believe that (1) the recent spike in spot LNG prices and (2) India’s inability to tie-up
long-term LNG will compound the problems. We retain our SELL rating on Petronet
LNG with a target price of `100.
Building more LNG capacity may not be the right path
We are not too enthused by PLNG’s plan to enhance its LNG capacity given our concerns on
acceptability of high-priced LNG in India. PLNG has announced its plans to (1) increase capacity of
its Dahej terminal to 18 mtpa by FY2015E from 10.5 mtpa currently and (2) set up a new terminal
on the east coast. We do not believe that higher imports of LNG will help in meeting the shortfall
of domestic gas given (1) likely low acceptability of high-priced LNG by power and fertilizer
sectors, (2) limited incremental demand from other sectors and (3) connectivity issues, which will
prevent high usage from highly-scattered industrial units in India. Exhibit 1 gives a comparative
analysis of the cost of power based on different fuels (coal, domestic natural gas, imported LNG
and naphtha).
Who will buy so much LNG?
We are perplexed by the enthusiasm surrounding the LNG business in India in light of its limited
acceptability by bulk consumers like the power and fertilizer sectors. Some power plants have
already abandoned their plans based on imported LNG (see our note titled No gas; only pipelines
and terminals dated March 29, 2011). We highlight that India would have an LNG import capacity
of 24 mtpa by end-CY2012E (see Exhibit 2) versus current imports of 10.7 mtpa (February 2011
data annualized). This would mean that India would have to consume an additional 13 mtpa (~50
mcm/d) of imported LNG with likely limited consumption from the power and fertilizer sectors. We
find such a scenario extremely difficult in light of issues highlighted above.
Guidance for FY2012E revenues and volumes lower versus our estimates; Maintain SELL
PLNG has guided for FY2012E revenues at US$4 bn and re-gasification volumes at 9.7 mn tons.
This is modestly below our estimates at US$4.6 bn and 10 mn tons, respectively (see Exhibit 3).
We maintain our SELL rating on PLNG noting (1) potential downside of 20% to our target price of
`100 and (2) risk to our volumes assumptions in light of current high spot LNG prices
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