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Petronet Lng Ltd (PLNG IN)
N: higher utilization offset by risk of marketing margin
We expect PLNG to continue with impressive capacity
utilisation of its terminal in Gujarat but expect utilization
ramp up at Kochi to be only gradual
The risk of regulation of marketing margins will remain an
overhang as Regulator has already started data gathering
We maintain a Neutral rating and target price of INR185
Petronet to continue demonstrating strong earnings near term. We expect Petronet to
continue to run its terminal at full capacity and earn impressive marketing margins on
imported gas as it makes the most of declining domestic gas volumes and increasing
demand. However, we believe risks of regulation of marketing margins and poor
utilisation of its new Kochi terminal will keep the stock range bound.
Risk of marketing margins. Our calculations suggest that Petronet earned 30-50c/mmbtu
of marketing margins in last 3 quarters and made a surplus profit from its efficiencies in
process boil-off. Regulator has now commenced the data gathering with the objective of
determining the marketing margin already. We factor in this risk by lowering our long
term marketing margins estimates to 0.135c/mmbtu in our DCF valuation.
Capacity utilisation at Kochi to be slow and gradual. PLNG’s Dahej terminal is
already running at peak capacity and expansion through additional jetty is expected only
by 2QFY14 and new tanks in 2016. We expect utilisation to stabilise at 91% once its new
terminals come on-stream. We believe Kochi terminal is expected to commission in
3QFY13 but its volume to ramp up will be slowly as this is the first time natural gas will
be made available in that region.
Valuation and risk. In order to factor the long-term potential of various growth plan of the
company and to account for the risks on marketing margin, we are now valuing the stock on
DCF basis (earlier at 15x PE on FY13e EPS) over the life of the asset at WACC of 13%.
However, we still arrive at the same valuation of INR185 and hence retain Neutral rating on
the stock. Any increase or decrease in the LNG import volumes, marketing margins and the
regassification tariff from our assumptions is a key risk to the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Petronet Lng Ltd (PLNG IN)
N: higher utilization offset by risk of marketing margin
We expect PLNG to continue with impressive capacity
utilisation of its terminal in Gujarat but expect utilization
ramp up at Kochi to be only gradual
The risk of regulation of marketing margins will remain an
overhang as Regulator has already started data gathering
We maintain a Neutral rating and target price of INR185
Petronet to continue demonstrating strong earnings near term. We expect Petronet to
continue to run its terminal at full capacity and earn impressive marketing margins on
imported gas as it makes the most of declining domestic gas volumes and increasing
demand. However, we believe risks of regulation of marketing margins and poor
utilisation of its new Kochi terminal will keep the stock range bound.
Risk of marketing margins. Our calculations suggest that Petronet earned 30-50c/mmbtu
of marketing margins in last 3 quarters and made a surplus profit from its efficiencies in
process boil-off. Regulator has now commenced the data gathering with the objective of
determining the marketing margin already. We factor in this risk by lowering our long
term marketing margins estimates to 0.135c/mmbtu in our DCF valuation.
Capacity utilisation at Kochi to be slow and gradual. PLNG’s Dahej terminal is
already running at peak capacity and expansion through additional jetty is expected only
by 2QFY14 and new tanks in 2016. We expect utilisation to stabilise at 91% once its new
terminals come on-stream. We believe Kochi terminal is expected to commission in
3QFY13 but its volume to ramp up will be slowly as this is the first time natural gas will
be made available in that region.
Valuation and risk. In order to factor the long-term potential of various growth plan of the
company and to account for the risks on marketing margin, we are now valuing the stock on
DCF basis (earlier at 15x PE on FY13e EPS) over the life of the asset at WACC of 13%.
However, we still arrive at the same valuation of INR185 and hence retain Neutral rating on
the stock. Any increase or decrease in the LNG import volumes, marketing margins and the
regassification tariff from our assumptions is a key risk to the stock.
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