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India Equity Research Reports, IPO and Stock News
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Please don't stop the music
ƒ Stellar 1Q makes us upgrade earlier conservative assumptions
ƒ June data shows potential to debottleneck Dahej to 12mtpa
ƒ Kochi on track; interim spot volumes to replace liquid fuels
ƒ Upgrade to HOLD and revise TP to INR171 (14x FY13E EPS)
Earnings momentum to stay
We upgrade Petronet LNG on the back of
stellar earnings performance in the last
two quarters, beating both our own and
Bloomberg consensus profit estimates by
a margin of about 20%. The shares have
outperformed the market by about 20% in
the same period (six months). We
significantly revise our earnings estimates,
as our earlier assumptions of utilization
peaking at 100% in Dahej and average
blended regas margin of USD0.73/mmbtu
now seem conservative, especially in the
light of PLNG achieving around 120%
utilization in June 2011 and consistently
earning marketing margins upward of USD1/mmbtu. We also observe
that earnings growth is coming on the back of an improving spot cargo
mix (26% vs nil y-y), in spite of 1HCY11 witnessing high spot LNG prices
(post Japan earthquake), which makes a strong case for sustained
demand for spot LNG owing to better economics compared to liquid fuel.
Finally, our downgrade of RIL’s FY12/13 KG-D6 volume by ~20% (E&P
Stalls, Ref & Pet Hold, 21 July 2011), makes us believe that absence of
cheaper domestic gas will continue to benefit PLNG for a few more
quarters. Short-term trigger: short-term contracts for Dahej/Kochi
terminal (reportedly 2-4mtpa from Qatar). Long-term trigger: clarity on
capex and timeline for expanding Dahej’s current 10mtpa capacity by
about 50% (approved by the board).
1QFY12 a significant beat; we revise EPS upwards
PLNG registered its highest ever PAT at INR2.57b (+130% y-y, +24.4%
q-q) on superior marketing margins (at least USD1/mmbtu) with a higher
spot mix and higher margins from regas services (at USD0.83/mmbtu, vs
US0.73/mmbtu in 4QFY11). We upgrade FY12E EPS by 40%, as we
assume higher utilization at 104% (100% earlier) and increase marketing
margins to USD1.0/mmbtu. For every USD0.25/mmbtu increase in
marketing margins we see a 7% EPS impact, and for a 4ppt increase in
utilization we see a 4% EPS impact.
Upgrade to HOLD; EPS growth hinges on Kochi ramp up
We revise our TP to INR171, at 14x FY13E EPS, a 20% premium to the
historical average, factoring in strong earnings growth of about 20% over
FY11-14E. Our target P/E is at about a 10% discount to domestic and
global gas related utility peers (Exhibit 9). We don’t recommend buying at
current levels as we think the potential EPS upside from Dahej is in the
price with the 10% rally in the shares recently, and we believe focus will
now shift to timely execution at Kochi. Downside risks to TP: delay/offtake
concerns in Kochi LNG. Upside risks: incremental term supply contracts.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Please don't stop the music
ƒ Stellar 1Q makes us upgrade earlier conservative assumptions
ƒ June data shows potential to debottleneck Dahej to 12mtpa
ƒ Kochi on track; interim spot volumes to replace liquid fuels
ƒ Upgrade to HOLD and revise TP to INR171 (14x FY13E EPS)
Earnings momentum to stay
We upgrade Petronet LNG on the back of
stellar earnings performance in the last
two quarters, beating both our own and
Bloomberg consensus profit estimates by
a margin of about 20%. The shares have
outperformed the market by about 20% in
the same period (six months). We
significantly revise our earnings estimates,
as our earlier assumptions of utilization
peaking at 100% in Dahej and average
blended regas margin of USD0.73/mmbtu
now seem conservative, especially in the
light of PLNG achieving around 120%
utilization in June 2011 and consistently
earning marketing margins upward of USD1/mmbtu. We also observe
that earnings growth is coming on the back of an improving spot cargo
mix (26% vs nil y-y), in spite of 1HCY11 witnessing high spot LNG prices
(post Japan earthquake), which makes a strong case for sustained
demand for spot LNG owing to better economics compared to liquid fuel.
Finally, our downgrade of RIL’s FY12/13 KG-D6 volume by ~20% (E&P
Stalls, Ref & Pet Hold, 21 July 2011), makes us believe that absence of
cheaper domestic gas will continue to benefit PLNG for a few more
quarters. Short-term trigger: short-term contracts for Dahej/Kochi
terminal (reportedly 2-4mtpa from Qatar). Long-term trigger: clarity on
capex and timeline for expanding Dahej’s current 10mtpa capacity by
about 50% (approved by the board).
1QFY12 a significant beat; we revise EPS upwards
PLNG registered its highest ever PAT at INR2.57b (+130% y-y, +24.4%
q-q) on superior marketing margins (at least USD1/mmbtu) with a higher
spot mix and higher margins from regas services (at USD0.83/mmbtu, vs
US0.73/mmbtu in 4QFY11). We upgrade FY12E EPS by 40%, as we
assume higher utilization at 104% (100% earlier) and increase marketing
margins to USD1.0/mmbtu. For every USD0.25/mmbtu increase in
marketing margins we see a 7% EPS impact, and for a 4ppt increase in
utilization we see a 4% EPS impact.
Upgrade to HOLD; EPS growth hinges on Kochi ramp up
We revise our TP to INR171, at 14x FY13E EPS, a 20% premium to the
historical average, factoring in strong earnings growth of about 20% over
FY11-14E. Our target P/E is at about a 10% discount to domestic and
global gas related utility peers (Exhibit 9). We don’t recommend buying at
current levels as we think the potential EPS upside from Dahej is in the
price with the 10% rally in the shares recently, and we believe focus will
now shift to timely execution at Kochi. Downside risks to TP: delay/offtake
concerns in Kochi LNG. Upside risks: incremental term supply contracts.
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