Petronet LNG - "Results beat estimates, reiterate Buy" ::LKP

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Petronet LNG’s Q2 FY12 results beat our expectations primarily due to marketing margin (calculated) of $ 0.8/mmBtu (our estimate: $ 0.56/mmBtu), compared to $ 0.4/mmBtu in Q1 FY12.

Capacity utilization at 106%, in line with estimates

The company continues to successfully utilize its Dahej terminal to the optimum with sales of 135.1 tbtu, marginally ahead of our expectation of 133.9 tbtu. Capacity utilization stood at 106% during Q2 FY12, as against 105% in Q1 FY12. We expect Petronet to achieve capacity utilization of 105% in FY12 driven by the persistent demand-supply gap of natural gas in India.

Implied Q2 FY12 marketing margin at $ 0.8/mmBtu

Strong demand for natural gas has enabled Petronet to earn marketing margin of $ 0.8/mmBtu on spot cargoes, which was much above our expectation of $ 0.56/mmBtu. Notably, such a high margin was earned on spot LNG which was priced around $ 12-13/mmBtu. However, we continue to maintain our marketing margin estimate at $ 0.5/mmBtu for FY12.

Revenue at Rs 53,668.7 mn, 8.7% above estimates

Total revenue, including regas services, came in at Rs 53,668.7 mn, 8.7% ahead of our estimates. Sales increased 75.5% y-o-y on account of sales volumes increasing by 35.4% & blended regas margins higher by 38.5%. The q-o-q jump in revenue reflects higher marketing margin of $ 0.8/mmBtu earned during Q2 FY12, compared to $ 0.4/mmBtu in Q1 FY12.

PAT of Rs 2,603.3 mn, 12% ahead of estimates

Consequently, Q2 FY12 PAT stood at Rs 2,603.3 mn, up 98.5% y-o-y & 1.4% q-o-q. EPS for the quarter was Rs 3.5 compared to Rs 3.4 in Q1 FY12.

Outlook and Valuation

The management has indicated that it has not seen high LNG prices acting as a deterrent to demand. Moreover, it does not see customers switching back to liquid fuels once they have started using gas. The company is confident of at least repeating this performance; and doing better, provided conditions are amenable for the same. Petronet has already booked cargoes until Dec. 2011 and the same has been tied up with customers at the same prices as the Jul-Sept quarter. We maintain our assumptions of 10.5 MMT & 11 MMT sales from the Dahej terminal in FY12 & FY13 respectively. We expect EPS of Rs 12.4 in FY12 & Rs 14.4 in FY13.

We maintain our estimates and reiterate BUY with a target price of Rs 220, which translates into anupside of 36.5%.