PLNG - Q2FY13 Result Update - Centrum

Q2FY13 Result Update

Petronet LNG

Buy

Target Price: Rs192

CMP: Rs169

Upside: 13.6%

Spot re-gasification margins shoot up along with volumes aiding profitability

Petronet reported highest ever quarterly profits at Rs3.1bn owing to sequential jump in spot re-gasification volumes and margins. Overall re-gasification volumes for Q2 stood at 135.0TBTUs vs. 127.0TBTUs in Q1. Higher re-gasification margin on spot sales led to 6.6% QoQ jump in blended re-gasification tariffs at Rs44.3/mmbtu (Q1 – Rs41.6/mmbtu). All projects of the company are on track and likely to yield results from Q1CY13 onwards. We remain upbeat on Petronet due to favourable demand-supply of natural gas in India and hence maintain ‘Buy’ rating on the stock.

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m  YoY revenues up due to rupee depreciation: Petronet’s Q1FY13 revenues surged by 40.7% YoY to Rs75.5bn due to rupee depreciation as YoY volumes remained stable at about 135.0TBTUs.

m  Spot demand rises along with re-gasification margins:  RLNG demand which was muted in Q1 recovered in Q2 with 6.3% QoQ jump in overall volumes at 135.0TBTUs vs. 127.0TBTUs in Q1.  Capacity utilisation thus stood at 106% in Q2. The jump in overall volumes was led by spot volumes which went up substantially on a QoQ basis (by 33.6%) from 20.5TBTUs to 27.4TBTUs.  Our reverse calculation suggests that sequential decline in spot LNG prices might have aided the expansion in spot re-gasification margins which jumped by 8.0% QoQ from Rs74.5/mmbtu to Rs80.5/mmbtu.  Blended re-gasification margins for Q2 thus stood at Rs44.3/mmbtu up 6.6% sequentially.

m  Higher spot re-gasification volumes and higher margins lead to supernormal performance:  Jump in spot volumes along with higher re-gasification margins led to Petronet reporting highest ever quarterly profits at Rs3.1bn (up 16.2% QoQ and 20.9% YoY).

m  Q3 volumes to remain buoyant, maintain Buy: Q3 is seasonally the best quarter for Petronet in volume terms. During Q3FY12 Petronet reported highest ever re-gasification volumes of 144.9TBTUs. With lower spot LNG prices and uptick in demand, we believe volumes will grow sequentially in Q3. If the company is able to maintain the same momentum in spot re-gasification margins, it could surpass its Q2 profitability. Anyway, we remain optimistic on domestic demand and hence predict buoyant volume growth in Q3.  Petronet’s all the projects are tracking the time lines with Kochi commissioning expected in Q1CY13. We have lowered our volume estimates for FY13E and FY14E based on the management guidance on Kochi capacity utilisation in the first year of operation with increase in blended tariffs (due to higher re-gasification margins on spot volumes). Based on the new estimates, we have arrived at a target price of Rs192 (earlier Rs181) and maintain ‘Buy’ rating on the stock.

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