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Petronet LNG (PLNG)
Energy
Maintaining a good run rate. PLNG reported 2QFY12 EBITDA at `4.48 bn (+2.3%
qoq and +65% yoy), 1.7% above our estimate of `4.41 bn led by higher-than-expected
re-gasification volumes at 135.1 tn BTU (+1.3% qoq and +35.4% yoy). We maintain
our SELL rating on the stock with a revised 12-month DCF-based target price of `135
(`125 previously). We note that we have fairly optimistic assumptions with respect to
(1) ramp-up of LNG volumes and (2) re-gasification tariffs. We see the company’s
guidance of achieving 25 mtpa re-gasification capacity as an uphill task given the
current global LNG demand-supply balance.
2QFY12 EBIDTA 1.7% higher versus estimates
PLNG’s reported net income at `2.6 bn (+1.4% qoq and +99% yoy) was 4.2% above our
expected `2.5 bn. PLNG reported higher-than-expected 2QFY12 EBITDA at `4.48 bn versus our
estimate of `4.41 bn on account of higher-than-expected re-gasification volumes at 135.1 tn BTU
versus our estimate of 131.1 tn BTU. The implied re-gasification tariff (blended) increased modestly
by 0.7% qoq to `37/mn BTU. We note that the company had a foreign exchange loss of `530 mn
which has been adjusted while computing the blended re-gasification tariffs.
Current stock price reflects optimistic assumptions
We highlight that the current stock price is implying (1) full capacity utilization at PLNG’s Dahej
and Kochi terminals and (2) 5% annual increase in re-gasification tariffs in perpetuity. We assume
full capacity utilization for PLNG’s terminal despite concerns on the acceptability of high-priced
imported LNG by bulk consumers such as power and fertilizer sectors. We model PLNG’s regasification
tariff to increase by 5% yoy in FY2012-14E and remain flat thereafter. We note that
higher re-gasification tariffs may sustain in the near term in the absence of any regulations.
Maintain SELL with a target price of `135
We maintain our SELL rating on PLNG with a revised 12-month DCF-based target price of `135
(`125 previously) noting (1) 16% potential downside to our fair value from current levels and (2)
the stock is trading at 12.1X FY2012E EPS and 8.3X FY2012E EV/EBITDA. We rule out any surprise
on LNG volumes as we already assume full capacity utilization at 17.5 mtpa from FY2016E
onwards. Key upside risk stems from higher-than-expected re-gasification tariffs in the long term.
Revised earnings to reflect higher marketing margins
We have revised our EPS estimates for FY2012-14E to `13.3, `12.8 and `11.3 from `11.5, `11.4
and `10.6 to reflect (1) higher marketing margins on spot volumes, (2) higher LNG volumes in
FY2012-13E, (3) revised Rupee exchange rate assumptions and (4) other minor changes. We
assume total volumes (contracted plus spot) at 10.6 mn tons for FY2012E, 11.3 mn tons for
FY2013E and 13 mn tons for FY2014E.
Key highlights from 2QFY12 results
Re-gasification tariffs increase modestly qoq. We compute implied re-gasification
tariff at `37/mn BTU in 2QFY12 versus `36.8/mn BTU in 1QFY12 and `30.4/mn BTU in
2QFY11. The sharp yoy increase in re-gasification tariff reflects significantly higher
marketing margins on spot cargoes.
LNG volumes increase further. PLNG reported qoq increase in re-gasification volumes
to 135.1 tn BTU versus 133.4 tn BTU in 1QFY12 and 99.8 tn BTU in 2QFY11 led by
increased demand for spot LNG (27.7 tn BTU in 2QFY12 versus 24.7 tn BTU in 1QFY12)
arising from lower gas production from RIL’s KG D-6 block.
Sharp increase in reported other expenditure. PLNG reported other expenditure at
`986 mn for 2QFY12 versus `457 mn in 1QFY12. We note that other expenditure in
2QFY12 included foreign exchange loss of `530 mn, which has been recovered from the
customers.
Qoq decline in other income. Other income declined 23.4% qoq to `201 mn for
2QFY12 versus `263 mn in 1QFY12.
Sharp increase in inventory. PLNG’s inventory increased to `5.3 bn at end-September
2011 from `2.5 bn at end-March 2011. The company has attributed the sharp increase in
inventory to four spot LNG cargoes which have been sold to the customers by mid-
October 2011.
Other updates
Kochi terminal. The project is expected to be completed by 4QCY12E at a cost of ~`41
bn. Petronet LNG has achieved 90% mechanical completion of the LNG terminal. The
company has incurred `26 bn of capex till September 2011.
Second jetty at Dahej. The second jetty is expected to be completed by 4QCY13E 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 2
mtpa post the completion of the same.
Volumes. We model contract LNG volumes at 7.3 mn tons, 8.4 mn tons and 10.2 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 3.3 mn tons in FY2012E, 2.9 mn tons in FY2013E and 2.8
mn tons in FY2014E versus 1.2 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 now assume exchange rate for FY2012E, FY2013E and FY2014E at
`46.3/US$, `45.63/US$ and `45/US$ versus `44.75/US$, `45.63/US$ and `45/US$
previously.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Petronet LNG (PLNG)
Energy
Maintaining a good run rate. PLNG reported 2QFY12 EBITDA at `4.48 bn (+2.3%
qoq and +65% yoy), 1.7% above our estimate of `4.41 bn led by higher-than-expected
re-gasification volumes at 135.1 tn BTU (+1.3% qoq and +35.4% yoy). We maintain
our SELL rating on the stock with a revised 12-month DCF-based target price of `135
(`125 previously). We note that we have fairly optimistic assumptions with respect to
(1) ramp-up of LNG volumes and (2) re-gasification tariffs. We see the company’s
guidance of achieving 25 mtpa re-gasification capacity as an uphill task given the
current global LNG demand-supply balance.
2QFY12 EBIDTA 1.7% higher versus estimates
PLNG’s reported net income at `2.6 bn (+1.4% qoq and +99% yoy) was 4.2% above our
expected `2.5 bn. PLNG reported higher-than-expected 2QFY12 EBITDA at `4.48 bn versus our
estimate of `4.41 bn on account of higher-than-expected re-gasification volumes at 135.1 tn BTU
versus our estimate of 131.1 tn BTU. The implied re-gasification tariff (blended) increased modestly
by 0.7% qoq to `37/mn BTU. We note that the company had a foreign exchange loss of `530 mn
which has been adjusted while computing the blended re-gasification tariffs.
Current stock price reflects optimistic assumptions
We highlight that the current stock price is implying (1) full capacity utilization at PLNG’s Dahej
and Kochi terminals and (2) 5% annual increase in re-gasification tariffs in perpetuity. We assume
full capacity utilization for PLNG’s terminal despite concerns on the acceptability of high-priced
imported LNG by bulk consumers such as power and fertilizer sectors. We model PLNG’s regasification
tariff to increase by 5% yoy in FY2012-14E and remain flat thereafter. We note that
higher re-gasification tariffs may sustain in the near term in the absence of any regulations.
Maintain SELL with a target price of `135
We maintain our SELL rating on PLNG with a revised 12-month DCF-based target price of `135
(`125 previously) noting (1) 16% potential downside to our fair value from current levels and (2)
the stock is trading at 12.1X FY2012E EPS and 8.3X FY2012E EV/EBITDA. We rule out any surprise
on LNG volumes as we already assume full capacity utilization at 17.5 mtpa from FY2016E
onwards. Key upside risk stems from higher-than-expected re-gasification tariffs in the long term.
Revised earnings to reflect higher marketing margins
We have revised our EPS estimates for FY2012-14E to `13.3, `12.8 and `11.3 from `11.5, `11.4
and `10.6 to reflect (1) higher marketing margins on spot volumes, (2) higher LNG volumes in
FY2012-13E, (3) revised Rupee exchange rate assumptions and (4) other minor changes. We
assume total volumes (contracted plus spot) at 10.6 mn tons for FY2012E, 11.3 mn tons for
FY2013E and 13 mn tons for FY2014E.
Key highlights from 2QFY12 results
Re-gasification tariffs increase modestly qoq. We compute implied re-gasification
tariff at `37/mn BTU in 2QFY12 versus `36.8/mn BTU in 1QFY12 and `30.4/mn BTU in
2QFY11. The sharp yoy increase in re-gasification tariff reflects significantly higher
marketing margins on spot cargoes.
LNG volumes increase further. PLNG reported qoq increase in re-gasification volumes
to 135.1 tn BTU versus 133.4 tn BTU in 1QFY12 and 99.8 tn BTU in 2QFY11 led by
increased demand for spot LNG (27.7 tn BTU in 2QFY12 versus 24.7 tn BTU in 1QFY12)
arising from lower gas production from RIL’s KG D-6 block.
Sharp increase in reported other expenditure. PLNG reported other expenditure at
`986 mn for 2QFY12 versus `457 mn in 1QFY12. We note that other expenditure in
2QFY12 included foreign exchange loss of `530 mn, which has been recovered from the
customers.
Qoq decline in other income. Other income declined 23.4% qoq to `201 mn for
2QFY12 versus `263 mn in 1QFY12.
Sharp increase in inventory. PLNG’s inventory increased to `5.3 bn at end-September
2011 from `2.5 bn at end-March 2011. The company has attributed the sharp increase in
inventory to four spot LNG cargoes which have been sold to the customers by mid-
October 2011.
Other updates
Kochi terminal. The project is expected to be completed by 4QCY12E at a cost of ~`41
bn. Petronet LNG has achieved 90% mechanical completion of the LNG terminal. The
company has incurred `26 bn of capex till September 2011.
Second jetty at Dahej. The second jetty is expected to be completed by 4QCY13E 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 2
mtpa post the completion of the same.
Volumes. We model contract LNG volumes at 7.3 mn tons, 8.4 mn tons and 10.2 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 3.3 mn tons in FY2012E, 2.9 mn tons in FY2013E and 2.8
mn tons in FY2014E versus 1.2 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 now assume exchange rate for FY2012E, FY2013E and FY2014E at
`46.3/US$, `45.63/US$ and `45/US$ versus `44.75/US$, `45.63/US$ and `45/US$
previously.
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