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Petronet LNG (PLNG)
Energy
Lower-than-expected 4QFY11 results. PLNG reported 4QFY11 EBITDA at `3.51 bn
(+1.6% qoq and +74% yoy), 6.3% below our estimate of `3.75 bn. The negative
variance despite higher-than-expected re-gasification volumes at 125.8 tn BTU was due
to (1) lower-than-expected re-gasification tariff at `32.7/mn BTU versus our expected
`34/mn BTU and (2) higher-than-expected employee cost at `122 mn. We maintain
SELL rating on the stock given potential downside of 23% to our revised 12-month
DCF-based target price of `105 (`100 previously). Key upside risk to our valuation stems
from higher-than-expected re-gasification tariffs in the long term.
4QFY11 EBIDTA lower versus estimates; net income boosted by higher other income
PLNG reported lower-than-expected 4QFY11 EBITDA at `3.5 bn versus our estimate of `3.75 bn
on account of (1) lower-than-expected re-gasification tariff at `32.7/mn BTU versus our expected
`34/mn BTU and (2) higher-than-expected employee cost at `122 mn versus our expected `59 mn.
The management attributed the modest increase in re-gasification tariff qoq (+0.8% qoq) despite
a 5% increase in re-gasification tariff in January 2011 to (1) lower marketing margins on spot
cargoes and (2) higher associated costs. However, PLNG’s reported net income at `2.06 bn
(+20.7% qoq and +112% yoy) was above our expected `1.91 bn on account of (1) higher other
income at `204 mn (+276% qoq) versus our expected `73 mn and (2) one-off of `110 mn for
interest received on income tax refund.
Maintain SELL on expensive valuations and concerns on acceptability of high-priced LNG in India
We maintain our SELL rating on the stock with a revised 12-month DCF-based target price of `105
(`100 previously) noting (1) the stock offers 23% downside to our fair value of PLNG, (2) the stock
is trading at 14.7X FY2012E EPS and 9X FY2012E EV/EBITDA and (3) risk to our volumes
assumptions in light of current high spot LNG prices. We have long highlighted our concerns on
acceptability of high-priced LNG in India. 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.
Revised earnings for 4QFY11 results
We have revised our EPS estimates for FY2012-14E to `9.3, `9.5 and `9.4 from `8.9, `8.6 and
`9.2 to reflect (1) 4QFY11 results and (2) other minor changes. We assume total volumes
(contracted plus spot) at 10 mn tons for FY2012E, 10.9 mn tons for FY2013E and 13.2 mn tons
for FY2014E. We model PLNG’s re-gasification tariff to increase by 5% in each year in FY2012-14E
and remain flat thereafter.
Qoq increase in volumes. PLNG reported a 5.1% qoq increase in re-gasification volumes
to 125.8 tn BTU versus 119.7 tn BTU in 3QFY11 (91.8 tn BTU in 4QFY10) led by increased
demand for spot LNG arising from lower gas production from RIL’s KG D-6 block.
Flat re-gasification tariffs qoq. We compute implied re-gasification tariff at `32.7/mn
BTU in 4QFY11 versus `32.5/mn BTU in 3QFY11 and `26.6/mn BTU in 4QFY10. We note
the modest qoq increase in re-gasification tariff despite a 5% hike effected by the
company in January 2011 reflects (1) lower marketing margins on spot cargoes and (2)
higher associated costs.
Sharp qoq increase in other income. Other income (adjusted) increased 276% qoq to
`204 mn for 4QFY11 versus `54 mn in 3QFY11. We note that the reported other income
of `314 mn for 4QFY11 includes received `110 mn as interest on income tax refund in
4QFY11.
Qoq increase in other expenditure. PLNG reported other expenditure at `482 mn for
4QFY11 versus `374 mn in 3QFY11. The increase in other expenditure was led by (1)
expense of ~`40 mn for repair and maintenance work at Dahej terminal and (2) one-time
road construction cost of ~`40 mn at Kochi.
Dividend. The company has declared a dividend of `2/share for FY2011 versus
`1.75/share for FY2010.
Other updates
Short-term contracts of 1.5 mtpa. PLNG has recently contracted 1.5 mtpa of
additional LNG supply in FY2012-13E for its Dahej terminal and has also finalized
the off-take arrangements for the same. The management has declined to
provide other details of the new contract.
Kochi terminal. The project is expected to be completed by 3QFY13E at a cost of ~`37
bn. The company has also received Board approval to expand the Kochi terminal capacity
to 5 mtpa at an additional cost of `4 bn.
Second jetty at Dahej. The company has awarded contracts for construction of the
second jetty and associated on-loading facilities at Dahej in January 2011. The second
jetty will likely be complete by 2QFY14E and will likely cost `9 bn. Petronet LNG can
handle a maximum of 10.5 mtpa of imported cargo till the completion of the second jetty
and will be able to handle an additional 1.5 mtpa post the completion of the same.
Key assumptions behind our earnings model
Volumes. We model contract LNG volumes at 7.5 mn tons, 8.4 mn tons and 10.7 mn
tons in FY2012E, FY2013E and FY2014E. We have included the additional contracted
volumes of 1.5 mtpa in spot LNG volumes given limited available information on the same.
We model spot LNG imports of 2.5 mn tons in FY2012E, 2.5 mn tons in FY2013E and 2.5
mn tons in FY2014E versus 8.7 mn tons in FY2011.
Re-gasification tariffs. We model PLNG’s re-gasification tariff to increase by 5% in each
year in FY2012-14E and remain flat thereafter until FY2021E, the terminal year of our
DCF model (see Exhibit 3).
Exchange rate. We assume exchange rate for FY2012E, FY2013E and FY2014E at
`45.5/US$, `44/US$ and `44/US$.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Petronet LNG (PLNG)
Energy
Lower-than-expected 4QFY11 results. PLNG reported 4QFY11 EBITDA at `3.51 bn
(+1.6% qoq and +74% yoy), 6.3% below our estimate of `3.75 bn. The negative
variance despite higher-than-expected re-gasification volumes at 125.8 tn BTU was due
to (1) lower-than-expected re-gasification tariff at `32.7/mn BTU versus our expected
`34/mn BTU and (2) higher-than-expected employee cost at `122 mn. We maintain
SELL rating on the stock given potential downside of 23% to our revised 12-month
DCF-based target price of `105 (`100 previously). Key upside risk to our valuation stems
from higher-than-expected re-gasification tariffs in the long term.
4QFY11 EBIDTA lower versus estimates; net income boosted by higher other income
PLNG reported lower-than-expected 4QFY11 EBITDA at `3.5 bn versus our estimate of `3.75 bn
on account of (1) lower-than-expected re-gasification tariff at `32.7/mn BTU versus our expected
`34/mn BTU and (2) higher-than-expected employee cost at `122 mn versus our expected `59 mn.
The management attributed the modest increase in re-gasification tariff qoq (+0.8% qoq) despite
a 5% increase in re-gasification tariff in January 2011 to (1) lower marketing margins on spot
cargoes and (2) higher associated costs. However, PLNG’s reported net income at `2.06 bn
(+20.7% qoq and +112% yoy) was above our expected `1.91 bn on account of (1) higher other
income at `204 mn (+276% qoq) versus our expected `73 mn and (2) one-off of `110 mn for
interest received on income tax refund.
Maintain SELL on expensive valuations and concerns on acceptability of high-priced LNG in India
We maintain our SELL rating on the stock with a revised 12-month DCF-based target price of `105
(`100 previously) noting (1) the stock offers 23% downside to our fair value of PLNG, (2) the stock
is trading at 14.7X FY2012E EPS and 9X FY2012E EV/EBITDA and (3) risk to our volumes
assumptions in light of current high spot LNG prices. We have long highlighted our concerns on
acceptability of high-priced LNG in India. 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.
Revised earnings for 4QFY11 results
We have revised our EPS estimates for FY2012-14E to `9.3, `9.5 and `9.4 from `8.9, `8.6 and
`9.2 to reflect (1) 4QFY11 results and (2) other minor changes. We assume total volumes
(contracted plus spot) at 10 mn tons for FY2012E, 10.9 mn tons for FY2013E and 13.2 mn tons
for FY2014E. We model PLNG’s re-gasification tariff to increase by 5% in each year in FY2012-14E
and remain flat thereafter.
Qoq increase in volumes. PLNG reported a 5.1% qoq increase in re-gasification volumes
to 125.8 tn BTU versus 119.7 tn BTU in 3QFY11 (91.8 tn BTU in 4QFY10) led by increased
demand for spot LNG arising from lower gas production from RIL’s KG D-6 block.
Flat re-gasification tariffs qoq. We compute implied re-gasification tariff at `32.7/mn
BTU in 4QFY11 versus `32.5/mn BTU in 3QFY11 and `26.6/mn BTU in 4QFY10. We note
the modest qoq increase in re-gasification tariff despite a 5% hike effected by the
company in January 2011 reflects (1) lower marketing margins on spot cargoes and (2)
higher associated costs.
Sharp qoq increase in other income. Other income (adjusted) increased 276% qoq to
`204 mn for 4QFY11 versus `54 mn in 3QFY11. We note that the reported other income
of `314 mn for 4QFY11 includes received `110 mn as interest on income tax refund in
4QFY11.
Qoq increase in other expenditure. PLNG reported other expenditure at `482 mn for
4QFY11 versus `374 mn in 3QFY11. The increase in other expenditure was led by (1)
expense of ~`40 mn for repair and maintenance work at Dahej terminal and (2) one-time
road construction cost of ~`40 mn at Kochi.
Dividend. The company has declared a dividend of `2/share for FY2011 versus
`1.75/share for FY2010.
Other updates
Short-term contracts of 1.5 mtpa. PLNG has recently contracted 1.5 mtpa of
additional LNG supply in FY2012-13E for its Dahej terminal and has also finalized
the off-take arrangements for the same. The management has declined to
provide other details of the new contract.
Kochi terminal. The project is expected to be completed by 3QFY13E at a cost of ~`37
bn. The company has also received Board approval to expand the Kochi terminal capacity
to 5 mtpa at an additional cost of `4 bn.
Second jetty at Dahej. The company has awarded contracts for construction of the
second jetty and associated on-loading facilities at Dahej in January 2011. The second
jetty will likely be complete by 2QFY14E and will likely cost `9 bn. Petronet LNG can
handle a maximum of 10.5 mtpa of imported cargo till the completion of the second jetty
and will be able to handle an additional 1.5 mtpa post the completion of the same.
Key assumptions behind our earnings model
Volumes. We model contract LNG volumes at 7.5 mn tons, 8.4 mn tons and 10.7 mn
tons in FY2012E, FY2013E and FY2014E. We have included the additional contracted
volumes of 1.5 mtpa in spot LNG volumes given limited available information on the same.
We model spot LNG imports of 2.5 mn tons in FY2012E, 2.5 mn tons in FY2013E and 2.5
mn tons in FY2014E versus 8.7 mn tons in FY2011.
Re-gasification tariffs. We model PLNG’s re-gasification tariff to increase by 5% in each
year in FY2012-14E and remain flat thereafter until FY2021E, the terminal year of our
DCF model (see Exhibit 3).
Exchange rate. We assume exchange rate for FY2012E, FY2013E and FY2014E at
`45.5/US$, `44/US$ and `44/US$.
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