Deutsche bank, --- Petronet LNG :: Raising target price on robust volume growth; reiterate Buy

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Petronet LNG Limited
Reuters: PLNG.BO Bloomberg: PLNG IN Exchange: BSE Ticker: PLNG
Raising target price on robust
volume growth; reiterate Buy


Volume growth remains robust, higher spot volumes to benefit margins
We reiterate our Buy on Petronet LNG and raise our target price by 12.5% to
INR180 based on expected higher volume growth. Our positive view is premised
on  1)  an  LNG  volume  CAGR  of  14%  in FY2011-14 driving an EBITDA CAGR of
20% and an EPS CAGR of 15%; 2) growth of 5% yoy in regas margins and higher
marketing margins from spot volumes; and  3) further capacity expansions in the
Dahej terminal to 15mmtpa and on the East Coast of India. We’re at the top end of
the Street for our target price and 16/15% above consensus on FY12/13E EPS.

PLNG’s volumes should grow by c50% over the next three years
We increased our FY2012/13 (March) EPS estimates by 13%/15% based on our
higher volume estimates – up by 8%/10% to 10.5/11.25mmtpa. This leads to an
increase in our valuation by 12.5% to INR180. We estimate LNG volumes to grow
at a CAGR of 14% in FY2011-14 to 12.5mmtpa, driven by higher volumes in Dahej
and the commissioning of its Kochi LNG terminal in H2CY12. The company
indicated that it achieved a utilization rate of 115%, or 11.5mmtpa, in June and can
achieve a throughput of 10.5-11mmtpa in Dahej from existing facilities. PLNG
would also benefit from an estimated annual 5% increase in regas margins.
PLNG reports INR2.6bn net profit; up 130% YoY and up 24% QoQ
Petronet LNG reported Q1FY12 (June) PAT at INR2.6bn, beating the Street’s and
our estimates, on account of higher regas volumes (up 231% YoY, up 37% QoQ),
higher marketing margins on spot volumes, and higher spot volumes. EBITDA at
INR4.4bn was up 77% YoY and 25% QoQ. The volumes handled (2.57mmtpa)
during the quarter imply a utilisation rate of 103% at the Dahej LNG terminal.
DCF-based value of INR180; delay in capacity expansion the key risk
We value PLNG at INR180, based on DCF with a WACC of 11.7%. Our WACC is
based on Deutsche Bank’s cost of equity assumptions for India (risk-free rate of
6.7% and risk premium of 8.1%) and a three-year average beta of 1. Key downside
risks are a significant rise in domestic natural gas production and delays in
execution of the Kochi LNG terminal and the jetty at Dahej