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Umbilical Cord for RLNG Growth
After registering all-time high capacity utilisation in 3QFY12 with reported profit
being 15% higher than street estimate, we believe Petronet LNG will continue to
positively surprise the market, deriving twin benefits from moderating LNG
prices and expectation of its Kochi facility going on stream in 3QFY13. The
company is adding 5mtpa of capacity in a tight supply market, which augurs
well for it. We assign a Buy rating to the stock with a target price of Rs210.
Further surprises in store on capacity utilisation: Our channel checks indicate that
if LNG demand remains buoyant, as witnessed in the first nine months of FY12, regasification
volumes are likely to touch 11.0/12.0/13.2mtpa in FY12E/13E/14E,
respectively. Dwindling domestic gas production and rising demand augurs well for the
company, as is evident from the strong demand traction gained from sale of short-term
and spot cargo in the first nine months of FY12 despite the prevailing high spot rates.
Regasification margin unfettered, marketing margin concern premature: Our
interaction with the gas regulator and the company has given us an unequivocal
message that LNG importers like Petronet are virtually out of the regulator‟s ambit. The
PNGRB Act requires a company setting up a RLNG facility to only get it registered with
the regulator after which the terminal is out of the regulator‟s tariff purview. Despite the
company management‟s reiteration of an increase in Dahej‟s re-gasification margin
annually, we have conservatively assumed a 5% hike in FY13E, 2% in FY14E and no
hike thereafter.
Kochi terminal construction to ride on latent demand from South India: We
believe the ramp-up at Kochi terminal would be faster than its Dahej counterpart, as
latent demand from South India is around 34mmscmd. We have assumed capacity
utilisation rates for its Kochi facility at 40% and 50% for FY13E and FY14E,
respectively.
US shale gas exports to create level-playing field: We believe the authorisation
from the US Department of Energy to export 16mmtpa of natural gas from four
terminals will gradually pare the pricing power of conventional gas producers. The US
could potentially supply up to a fifth of global gas volume if all proposed export
terminals are built. The first inkling of shale gas posing a competitive threat to
conventional gas is visible in Russia and Algeria who have mellowed down from their
initial stand on gas pricing.
Outlook and valuation: We have valued Petronet on DCF methodology, assigning a
target price of Rs 210 (which implies one-year forward 13.7x P/E and 3.1x P/BV).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Umbilical Cord for RLNG Growth
After registering all-time high capacity utilisation in 3QFY12 with reported profit
being 15% higher than street estimate, we believe Petronet LNG will continue to
positively surprise the market, deriving twin benefits from moderating LNG
prices and expectation of its Kochi facility going on stream in 3QFY13. The
company is adding 5mtpa of capacity in a tight supply market, which augurs
well for it. We assign a Buy rating to the stock with a target price of Rs210.
Further surprises in store on capacity utilisation: Our channel checks indicate that
if LNG demand remains buoyant, as witnessed in the first nine months of FY12, regasification
volumes are likely to touch 11.0/12.0/13.2mtpa in FY12E/13E/14E,
respectively. Dwindling domestic gas production and rising demand augurs well for the
company, as is evident from the strong demand traction gained from sale of short-term
and spot cargo in the first nine months of FY12 despite the prevailing high spot rates.
Regasification margin unfettered, marketing margin concern premature: Our
interaction with the gas regulator and the company has given us an unequivocal
message that LNG importers like Petronet are virtually out of the regulator‟s ambit. The
PNGRB Act requires a company setting up a RLNG facility to only get it registered with
the regulator after which the terminal is out of the regulator‟s tariff purview. Despite the
company management‟s reiteration of an increase in Dahej‟s re-gasification margin
annually, we have conservatively assumed a 5% hike in FY13E, 2% in FY14E and no
hike thereafter.
Kochi terminal construction to ride on latent demand from South India: We
believe the ramp-up at Kochi terminal would be faster than its Dahej counterpart, as
latent demand from South India is around 34mmscmd. We have assumed capacity
utilisation rates for its Kochi facility at 40% and 50% for FY13E and FY14E,
respectively.
US shale gas exports to create level-playing field: We believe the authorisation
from the US Department of Energy to export 16mmtpa of natural gas from four
terminals will gradually pare the pricing power of conventional gas producers. The US
could potentially supply up to a fifth of global gas volume if all proposed export
terminals are built. The first inkling of shale gas posing a competitive threat to
conventional gas is visible in Russia and Algeria who have mellowed down from their
initial stand on gas pricing.
Outlook and valuation: We have valued Petronet on DCF methodology, assigning a
target price of Rs 210 (which implies one-year forward 13.7x P/E and 3.1x P/BV).
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