PLNG - Q3FY13 Result Update - Centrum

Q3FY13 Result Update

Petronet LNG

Buy

Target Price: Rs193

CMP: Rs165

Upside: 17.3%

Yet another stellar quarter

Petronet once again beat its highest ever quarterly profits of Q2 albeit marginally (up 1.2% QoQ) backed by sequential growth in re-gasification volumes and healthy re-gasification margins. Being the strongest quarter, re-gasification volumes in Q3 stood at 140.6TBTUs vs. 135.0TBTUs in Q2 but lower than 144.9TBTUs reported in Q3FY12. Lower margins on spot volumes led to 1.5% sequential decline in blended re-gasification tariffs at Rs43.7/mmbtu vs. Rs44.3/mmbtu. Petronet’s Kochi terminal is expected to be commissioned by April 2013 while the second jetty at Dahej is expected to be operational by April 2014. Volume growth from Kochi terminal is likely to be muted over the next couple of years due to pipeline connectivity constraints, but is likely to pick up from FY16E onwards. Although, earnings are likely to be subdued over FY14-15E due to lower utilisation of Kochi, we like Petronet due to its medium to long term growth prospects and maintain ‘Buy’ on the stock.

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m  Revenues up due to higher spot prices and rupee depreciation: Petronet’s Q3FY13 revenues surged by 33.1% YoY and 11.6% QoQ to Rs84.3bn owing to higher spot prices and rupee depreciation.

m  Spot volumes surge, but re-gasification margins decline QoQ:  Buoyant demand during Q3 led to 4.2% QoQ jump in overall volumes at 140.6TBTUs vs. 135.0TBTUs in Q2. Spot volumes were up by 11.7% QoQ at 30.6TBTUs vs. 27.4TBTUs, but re-gasification tolling volumes declined by 22.1% QoQ at 13.5TBTUs vs. 17.3TBTUs. Our reverse calculation suggests that the sequential jump in spot LNG prices might have affected spot re-gasification margins which declined by ~10.0% QoQ from Rs80.5/mmbtu to Rs72.5/mmbtu. Blended re-gasification margins thus declined by 1.5% QoQ at Rs43.7/mmbtu vs. Rs44.3/mmbtu.
m  Higher volumes lead to yet another stellar quarter:  Sequential jump in re-gasification volumes despite contraction in spot re-gasification margins led to yet another stellar quarter for Petronet with the highest ever quarterly profitability at Rs3.2bn (up 7.8% YoY and 1.2% QoQ).
m  Kochi volumes to remain muted in FY14-15E; Q4 can surprise again: Management has indicated that Kochi is likely to operate at lower utilisation levels in FY14-15E due to pipeline connectivity constraints. However, it is confident of utilizing at least 40% of Kochi capacity in FY16E. We have lowered our Kochi re-gasification volumes to 0.3mmt and 0.8mmt in FY14E and FY15E respectively (from 0.5mmt and 1.0mmt earlier) but upped spot re-gasification margins based on the recent performance. Petronet has escalated its re-gasification margins by 5% from January 2013 onwards. If the company is able to maintain volumes and spot re-gasification tariffs (similar to Q3) in Q4, then it can surpass its Q3 profitability given higher re-gasification margins on long-term and tolling services. We like Petronet due to its medium to long term growth prospects and maintain ‘Buy’ on the stock with a DCF based price target of Rs194.

Thanks & Regards, 

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