Petronet LNG Limited - Earnings miss on lower trading gains and higher costs ::Credit Suisse

● PLNG's EBITDA missed our estimates by 18% (consensus by 

13%) primarily on lower volumes (4% behind expectations), a fall 

in trading gains and higher costs. Management commentary 

suggests demand for LNG continues to be sluggish.

● We estimate c.20-25% of the EBITDA miss is on account of lower 

volumes. Depreciation and interest costs were in line, while tax 

rates were 170 bp ahead, leading to a Rs0.7 bn miss on PAT.

● The second Dahej Jetty is expected to be operational by Apr-14, 

and could provide some volume upside to PLNG. Financial 

closure for the Dahej expansion has been achieved, and the EPC 

is likely to be awarded in the next few months.

● While PLNG appears inexpensive on headline (10.4x FY15 EPS), 

we think the stock lacks catalysts near term. Media reports (e.g., 

ET) quote GAIL officials stating there is unprecedented resistance 

to the Tamil Nadu pipeline, the completion of which is critical for 

profitable Kochi LNG operations. We maintain NEUTRAL.

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EBITDA miss on lower trading gains, higher costs
PLNG's EBITDA (Rs4.0 bn) missed our estimates by 18% and
consensus numbers by 13%, with volumes 4% below estimates as
well. This is the lowest quarterly EBITDA reported in almost nine
quarters. We estimate that c.20-25% of the EBITDA miss is on
account of lower volumes and the remainder likely due to a
combination of lower trading gains and higher internal consumption.
As highlighted in our note on the FY13 annual report, operating costs
have shown a 32% CAGR escalation over FY10-13; the depreciation
of the currency and rollup of Rasgas prices are likely to hurt hereon as
well. Depreciation and interest costs were in line with expectations,
while tax rates were 170 bp higher than expected. As a result, PAT
was down 8% QoQ and Rs 0.7 bn below estimates.

Conference call takeaways
● Dahej expansion: PLNG expects to evaluate the RFP for the
expansion over the next couple of months while the second Jetty
is expected to be operational by Mar/Apr-14. The financial closure
has been achieved (Rs22.5 bn term loan) for the expansion.
● Kochi terminal: Delivery of the first cargo is expected in the first
half of August; initial consumers are the Kochi refinery and a FACT
fertiliser plant, with the regas tariff fixed at Rs62/mmbtu. Work on
the Tamil Nadu part of the pipeline is currently stalled, with PLNG
expecting the Kochi-Mangalore connectivity via Kerala to take a
further nine months to complete. Initial internal consumption
charged to the consumers could be c. 1% of volumes.

Valuations not stretched, but no clarity on Kochi ramp-up
The opening of the Kochi terminal has already been delayed by over a
year (PLNG reported project completion of 97% in Aug-12) due to
delays in pipeline connectivity to initial offtakers, lack of readiness of
these customers and additional capex requirements at the terminal to
handle low pressure operations. While the terminal is likely to
commission in the current quarter, we estimate utilisations need to be
c.30% for the project to generate free cash and c.50% for PBT
breakeven, for which visibility currently remains low. Valuations are
inexpensive (10.4x FY15 EPS), but PLNG lacks near-term catalysts.
We maintain NEUTRAL.