Management Interaction Takeaways
PLNG
Buy
Target Price: Rs191
CMP: Rs162
Upside: 18.1%
We recently interacted with the management of Petronet LNG to get their feedback on ongoing projects and business environment. The key highlights are:
m Robust re-gasification volumes: In October, Petronet’s Dahej utilisation stood at about 122% (re-gasification volumes at about 1.02mmt, according to Platt’s data). Historically, Q3 has been the best quarter for the company with highest quarterly volumes and in Q3FY12 were the highest at 2.84mmt (144.9TBTUs). During Q3, we expect this to climb up QoQ from 2.65mmt (135.0TBTUs) to about 2.75mmt (2.80TBTUs). The company also earned a healthy ~Rs80/mmbtu re-gasification margin on spot volumes in Q2FY13. If it is able to earn similar margin in Q3 with higher volumes, earnings would jump further during the quarter.
m LNG prices and domestic demand: LNG prices corrected to about US$12/mmbtu in Q2 but scaled back to about US$14-15/mmbtu in the spot market over the past couple of months. However, domestic demand is still strong and hence the company was able to process higher re-gasification volumes in October.
m Kochi re-gasification terminal: The management re-confirmed the start-up of Kochi terminal in Q4FY13. Although, LNG volumes have not been tied up for the terminal, the company is confident it can do so once the commissioning nears. Initially the natural gas will be supplied to close-by units till the long distance pipeline (Kochi-Mangalore-Bangalore) is commissioned (expected by end 2013).
m Gangavaram re-gasification terminal: Petronet is awaiting the public hearing on environmental impact assessment report submitted to the Andhra Pradesh Pollution Control Board. Post the hearing the company will be able to proceed with the approval of FEED and award of EPC contract.
m Expect robust Q3 earnings: We believe Q3 volumes to be higher than Q2 volumes due to healthy domestic demand. However, due to higher spot LNG prices, marketing margins probably would be lower. Even after considering lower marketing margins, we believe the company would be able to report Rs3.0bn+ PAT for Q3. We like Petronet due to its medium to long term visibility and continue to remain optimistic on the stock. Hence, we maintain ‘Buy’ on the stock with a price target of Rs192.
m LNG prices and domestic demand: LNG prices corrected to about US$12/mmbtu in Q2 but scaled back to about US$14-15/mmbtu in the spot market over the past couple of months. However, domestic demand is still strong and hence the company was able to process higher re-gasification volumes in October.
m Kochi re-gasification terminal: The management re-confirmed the start-up of Kochi terminal in Q4FY13. Although, LNG volumes have not been tied up for the terminal, the company is confident it can do so once the commissioning nears. Initially the natural gas will be supplied to close-by units till the long distance pipeline (Kochi-Mangalore-Bangalore) is commissioned (expected by end 2013).
m Gangavaram re-gasification terminal: Petronet is awaiting the public hearing on environmental impact assessment report submitted to the Andhra Pradesh Pollution Control Board. Post the hearing the company will be able to proceed with the approval of FEED and award of EPC contract.
m Expect robust Q3 earnings: We believe Q3 volumes to be higher than Q2 volumes due to healthy domestic demand. However, due to higher spot LNG prices, marketing margins probably would be lower. Even after considering lower marketing margins, we believe the company would be able to report Rs3.0bn+ PAT for Q3. We like Petronet due to its medium to long term visibility and continue to remain optimistic on the stock. Hence, we maintain ‘Buy’ on the stock with a price target of Rs192.
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