Petronet LNG Ltd. Time for breather… HOLD ::IDBI capital

Key Highlights
 Spot LNG prices have come down to US$11/mmbtu and even market margins are relatively better
than previous couple of quarters. However, due to higher LNG pooled prices, the company is still
witnessing slowdown in demand which is causing slight increase in its inventory levels.
 The company does not see its volume crossing 140tbtu in near-to-medium term.
 Dahej’s second jetty is expected to commence by end-2013, while storage tanks and vaporization
units are expected to complete by end 2015. Post that, PLNG's operating capacity would be around
15mtpa.
 For Dahej expansion, the company has already completed gas sales agreements with GAIL and
GSPC for 2.5mtpa and 1mtpa respectively. Re-gasification margins are likely to be closer to the
current levels of Rs35/mmbtu. Further, IOC is showing interest for remaining 1.5mtpa capacity for
Dahej.
 The company is only in talks for short-term contracts and not for long-term contracts as prices for
latter contracts are still pretty high.
 GAIL’s recent short term contract with GDF of 0.8mtpa is priced slightly higher than US$13/mmbtu,
which would fetch re-gasification margin for PLNG and would be marketed by GAIL.
 Phase-I of Kochi-Bangalore pipeline would be ready by end-CY12, while phase-II would be over by
end-CY13. Therefore, Kochi terminal would operate at lower capacity of 0.7-0.8mtpa in FY14,
ramping up to 5mtpa in another 2-3 years.
 Re-gas margins are expected at ~Rs50/mmbtu for Kochi terminal, in line with our estimates.
 PLNG expects port to be ready by end-CY16 while floating terminal is expected to commence from
CY15, which will have capacity of 2-3mtpa. No major capex has been done so far for Gangavaram
project.
 The company expects volume to remain stable till FY14 owing to capacity constraints.

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Outlook and Valuation
The stock is trading at a P/E multiple of 10.8x and P/BV of 2.7x on FY14E. We expect the company to
report moderate earnings growth of 3.6% CAGR over FY12-FY14E as major contribution from Kochi
terminal is expected to come from FY15 onwards. Further, expansion of Dahej terminal is likely to
complete by end-FY14, which would drive growth from FY15E. Also, the company has started
commissioning its third LNG terminal in Gangavaram, Andhra Pradesh which would be ready by end-
CY16. However, the company is planning to commission floating terminal of 2.5-3mtpa capacity, which is
likely to commence by CY14. Therefore, we may see significant growth from FY15 onwards as most of its
expansion plans are likely to complete by FY14-FY15. However, in medium term we expect the valuation
to remain range-bound due to flattish earnings growth and regulatory overhang. Driven by the recent rally
in stock price, we are downgrading the stock to HOLD from ACCUMULATE. We maintain our target
price at Rs165.