LKP Research :Petronet LNG - Q1FY14 Result Update

Petronet LNG - Q1FY14 Result Update

Lower trading margin and spot volume decline hurts operational performance

PLNG Q1FY14 operating profit of Rs4bn was lower than our estimate of Rs4.5bn mainly on account of lower spot volume and lower trading margin. Spot volumes witnessed a sequential decline of 22.2% to 18.9tbtu (yoy -7.4%). Implied trading margin on spot volumes declined by 85.5% qoq to Rs4.6mmbtu, much lower than our expectation of Rs30/mmbtu, due to weak demand from power sector as a result of cheaper coal prices. PLNG’s operating margin for the quarter declined by 42bps qoq to 4.7% (yoy -179bps). We maintain our BUY rating on PLNG with a revised price target of Rs156. At the CMP, the stock is trading at 8.2x and 5x FY15e EPS and EBITDA respectively.

Valuation and view

The current imbroglio of the Kochi-Mangalore/Bangalore pipeline would continue to affect volume ramp up at PLNG’s Kochi terminal. Any early solution of this problem would be very positive for the company in the near term. In the longer run, we expect the gas deficit scenario in India to worsen as domestic gas supplies fall woefully short in comparison with growth in demand for gas. By 2015 we estimate gas demand to increase to 317mmscmd while supply is expected to grow to 202mmscmd, thus leading to a huge deficit of 115mmscmd. PLNG is doubling its capacity by FY16 to 20mntpa to capitalize on the high demand supply mismatch of gas in the energy deficient Indian markets.

We value PLNG on DCF basis given the long term earnings visibility. We have used WACC of 12.3% and terminal growth rate of 2% for DCF valuation. We have not valued the proposed 5mntpa Gangavaram LNG terminal in Andhra Pradesh. Further progress and clarity on this project could lead to upside to our valuation of PLNG. We maintain our BUY rating on PLNG with a revised price target of Rs156. At the CMP, the stock is trading at 8.2x and 5x FY15e EPS and EBITDA respectively.

Actual v/s Estimates

Y/E, Mar (Rs. m)	Q1FY14	Q4FY13	qoq (%)	Q1FY13	yoy (%)	LKP Estimates	Deviation (%/bps)
Revenue	84,442	84,656	-0.3%	70,304	20.1%	88,121	-4.2%
EBITDA	3,978	4,344	-8.4%	4,571	-13.0%	4,506	-11.7%
EBITDA (%)	4.7%	5.1%	-42 bps	6.5%	-179 bps	5.1%	-40 bps
PAT	2,253	2,451	-8.1%	2,708	-16.8%	2,668	-15.6%

LKP Research

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