Post our recent meeting with Petronet LNG (PLNG) management, we reiterate our bullish stance on the company and believe that the new capex (Kochi LNG, Gangavaram LNG, Kerala power plant) will drive growth going forward. We have revised up our EPS estimates to INR14.2 and INR14.4 for FY13 and FY14 from INR13.2 and INR13.5, respectively, incorporating higher marketing margins for FY13/14 (correction in spot LNG prices). Consequently we have also raised our target price to INR200/share from INR190/share earlier. Maintain ‘BUY’.
Dahej LNG terminal: Management expects FY13 volume to be marginally higher than FY12 (107% utilisation). Volumes are expected to increase as second jetty commences in December 2013 (capacity will rise from 10.7 mtpa to 11.5 mtpa) and start of additional vapourisers in December 2015 (capacity increase to 15.0 mtpa plus). Further, until the expansion of Dahej gets completed, capacity commitments imply that PLNG will be left with a small 6-8% capacity for self-spot volumes (refer chart 1).
Kochi LNG terminal: The terminal is ready and awaiting start of phase 1 of GAIL’s Kochi-Bengaluru-Mangalore pipeline—demand estimate of 0.7 mtpa (Kochi refinery, HOCL, FACT, power plant). Phase II pipeline expected in December 2013 is estimated to bring incremental demand of 3.5 mtpa, leading to total utilisation level of over 80%. Also the construction of the Kerala power plant will be completed in three phases of 350 MW each, generating 1.2 mtpa LNG demand for terminal. This will be a 50:50 JV with the Kerala state government. PLNG will have to invest INR6-7bn equity for its stake in the next three-four years. Management expects PPA at INR6.0-6.5/unit to be signed by FY13 end.
Gangavaram LNG terminal: Construction of the facility is likely to commence by March 2013 (after environmental clearance). Total capex planned at INR45bn.
Outlook and valuations: Capex holds the key; maintain ’BUY’
Upside risks: (a) Higher/faster utilisation at Kochi terminal against est. full utilisation by FY18; (b) we have assumed zero marketing margins FY17 onwards; and (c) higher re-gas charges for Kochi terminal – est. INR50/mmbtu. Downside risk: (a) regulation of re-gas charges and marketing margins (we see low possibilities). We are marginally tweaking our DCF (12% WACC) based target price to INR200 (INR190 earlier). PLNG’s CEPS is expected to grow at 14.3% CAGR over FY12-14. Maintain ‘BUY/Sector Outperformer’.
Regards,
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