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Petronet LNG (PLNG)
Energy
Full throttle. PLNG reported 1QFY12 EBITDA at `4.38 bn (+25% qoq and +77% yoy),
20% above our estimate of `3.64 bn. The positive surprise was led by (1) higher-thanexpected
re-gasification volumes at 133.4 tn BTU (+6.1% qoq and +40.2% yoy) and (2)
higher-than-expected implied re-gasification tariff at `36.8/mn BTU (+12.3% qoq and
+19.4% yoy) versus our expected `32.3/mn BTU. The management announced its plans
to expand capacity through (1) 5 mtpa expansion at Dahej and (2) new LNG terminal on
the east coast. However, we are not enthused by the same given our concerns on
acceptability of high-priced LNG in India. We maintain SELL rating on the stock with a
revised 12-month DCF-based target price of `125 (`105 previously).
1QFY12 EBIDTA 20% higher versus estimates
PLNG reported higher-than-expected 1QFY12 EBITDA at `4.38 bn versus our estimate of `3.64 bn
on account of (1) higher-than-expected re-gasification volumes at 133.4 tn BTU versus our
estimate of 126 tn BTU and (2) higher-than-expected implied re-gasification tariff at `36.8/mn BTU
versus our expected `32.3/mn BTU. The sharp increase in re-gasification tariff qoq (+12.3% qoq)
despite stable base tariff reflects significantly higher marketing margins on spot cargoes. PLNG’s
reported net income at `2.57 bn (+24.4% qoq and +130% yoy) was above our expected `1.9 bn.
Grand plans but grim reality
The management announced its plans of expanding its LNG capacity through (1) brownfield
project of 5 mtpa at Dahej and (2) new LNG import terminal on the east coast. The management
also expressed confidence in limited risk to offtake of imported LNG from its expanded capacity
even in light (1) proposed expansion of Shell’s Hazira terminal, (2) proposed new LNG terminals by
other players and (3) potential ramp-up from RIL’s KG D-6 gas. However, we would adopt a more
cautious approach in evaluating the prospects of incremental imported LNG in India in light of (1)
unacceptability of high-priced LNG by bulk consumers and (2) limited opportunities for sourcing
long-term LNG at a palatable price. We discuss the same in detail later in the note.
Revised earnings; maintain SELL with a target price of `125
We have revised our EPS estimates for FY2012-14E to `11.5, `11.4 and `10.6 from `9.3, `9.5 and
`9.4 to reflect (1) higher re-gasification volumes, (2) lower gas for internal consumption, (3)
FY2011 annual report, (4) revised rupee exchange rate assumptions and (5) other minor changes.
We assume total volumes (contracted plus spot) at 10.5 mn tons for FY2012E, 11.2 mn tons for
FY2013E and 13.2 mn tons for FY2014E. We maintain our SELL rating on PLNG with a revised 12-
month DCF-based target price of `125 (`105 previously).
Key highlights from 1QFY12 results
Exhibit 1 gives the details of PLNG’s 1QFY12 results and compares the same with 4QFY11
and 1QFY11 results.
Re-gasification tariffs increase qoq. We compute implied re-gasification tariff at
`36.8/mn BTU in 1QFY12 versus `32.7/mn BTU in 4QFY11 and `30.8/mn BTU in 1QFY11.
We are surprised by the sharp qoq increase in re-gasification tariff qoq as the base regasification
tariff was revised in January and should have been flat qoq. The sharp qoq
increase in re-gasification tariff possibly reflects significantly higher marketing margins on
spot cargoes to some extent.
Qoq increase in volumes. PLNG reported qoq increase in re-gasification volumes to
133.4 tn BTU versus 125.8 tn BTU in 4QFY11 and 95.1 tn BTU in 1QFY1 led by increased
demand for spot LNG arising from lower gas production from RIL’s KG D-6 block.
Sharp qoq increase in other income. Other income (adjusted) increased 29% qoq to
`263 mn for 1QFY12 versus `204 mn in 4QFY11. We note that the reported other
income of `314 mn for 4QFY11 included `110 mn as interest received on income tax
refund in 4QFY11.
Qoq decline in other expenditure. PLNG reported other expenditure at `457 mn for
1QFY12 versus `482 mn in 4QFY11. We note that other expenditure in 4QFY11 included
(1) expense of ~`40 mn for repair and maintenance work at Dahej terminal and (2) onetime
road construction cost of ~`45 mn at Kochi.
Maintain SELL on expensive valuations
We maintain our SELL rating on PLNG with a revised 12-month DCF-based target price of
`125 (`105 previously) noting (1) the stock offers 19% potential downside to our fair value
and (2) the stock is trading at 13.4X FY2012E EPS and 8.9X FY2012E EV/EBITDA. The
upward revision to our target price reflects (1) higher volume assumption, (2) higher
marketing margins on spot cargoes, (3) lower consumption of gas for internal use and (4)
inclusion of PLNG’s 26% stake in the solid cargo port at Dahej, We rule out any surprise on
LNG volumes as we already assume full capacity utilization at 17 mtpa from FY2016E
onwards. Key upside risk to our valuation stems from higher-than-expected re-gasification
tariffs.
Key concerns
Sustainability of earnings. We highlight our concerns on the sustainability of
earnings/re-gasification tariffs in light of the abnormally high profitability of the company
in 1QFY12. We compute PLNG’s adjusted RoCE at 38% based on 1QFY11 earnings; this
is significantly higher than the 16% IRR based on which the current tariffs have been
contractually agreed.
Downside risk to our volume assumptions. We note that there is no scope for upside
risk to our volume assumption given that we assume full capacity utilization at Dahej and
Kochi terminals. On the contrary, we do not rule out downside risk to our assumption in
light of unacceptability of high-priced imported LNG in India by bulk consumers. Our view
has been confirmed by the management that the current price of LNG precludes use by
power and fertilizer sector. This is also corroborated by the fact that the entire spot
volumes have been consumed by industrial units, refineries and city gas distribution (CGD)
networks.
The situation has been exacerbated by the announcement of (1) expansion of Dahej
terminal by 5 mtpa, (2) expansion of Shell’s Hazira terminal to 5 mtpa versus 3.67 mtpa
presently and (3) announcement of proposed new LNG terminals by several players
(including PLNG’s terminal on the east coast). We note that the new long-term contracts
for imported LNG are being signed at 14-15% linkage to JCC. This would rule out use by
power and fertilizer sectors. Exhibits 2 and 3 give the comparative cost for the endconsumer
of power and fertilizer sectors using different feedstocks. We do not see
consumption by refineries, industrial units and CGD networks to be able match the
proposed increase in LNG capacity in India.
Current valuations reflect optimistic assumptions. We highlight that the current stock
price is implying (1) full capacity utilization at PLNG’s Dahej and Kochi terminals and (2)
5% annual increase in re-gasification tariffs in perpetuity. We assume full capacity
utilization for PLNG’s terminal despite concerns on the acceptability of high-priced
imported LNG by bulk consumers such as power and fertilizer sectors. We model PLNG’s
re-gasification tariff to increase by 5% in each year in FY2012-14E and remain flat
thereafter. We note that higher re-gasification tariffs may sustain in the near term in the
absence of any regulations.
Other updates
Expansion of Dahej terminal by 5 mtpa. The management announced its plans to
expand the capacity at its Dahej terminal by 5 mtpa. However, the management
highlighted that it would take at least 3-4 years to commission the terminal. The cost of
the brownfield expansion is estimated at US$500 mn.
Kochi terminal. The project is expected to complete by 2QFY13E at a cost of ~`41 bn.
The company has also received Board approval to expand the Kochi terminal capacity to 5
mtpa.
Second jetty at Dahej. The company had awarded contracts for construction of the
second jetty and associated loading facilities at Dahej in January 2011. The EPC
contractors are presently carrying out basic engineering activities for construction of
marine and top-side works.
The second jetty will likely be complete by September 2013 and will likely cost `9 bn.
Petronet LNG can handle a maximum of 10.5 mtpa of imported cargo till the completion
of the second jetty and will be able to handle an additional 1.5 mtpa post the completion
of the same.
New terminal on the east coast. The management announced that it has taken the
approval of the board of directors to commission an LNG terminal on the east coast. The
management is yet to finalize a location for the same but plans to prepare a Detailed
Feasibility Report (DFR) internally over the next 2-3 months.
Solid cargo port at Dahej. The solid cargo port at Dahej implemented by Adani Petronet
(Dahej) Port Private Ltd commenced operations in FY2011. We ascribe a value of `4 to
PLNG’s 26% stake in the joint venture.
Pact with Gazprom for LNG. The management stated that it has entered into a
Memorandum of Understanding with Gazprom for supply of imported LNG and the terms
of the deal are yet to be finalized. PLNG has entered into a initial pact with Gazprom for
supply of 2.5 mtpa of LNG for 25 years with the commencement of supply likely from
FY2016.
Maintain SELL on expensive valuations
We maintain our SELL rating on PLNG with a revised 12-month DCF-based target price of
`125 (`105 previously) noting (1) the stock offers 19% potential downside to our fair value
and (2) the stock is trading at 13.4X FY2012E EPS and 8.9X FY2012E EV/EBITDA. The
upward revision to our target price reflects (1) higher volume assumption, (2) higher
marketing margins on spot cargoes, (3) lower consumption of gas for internal use and (4)
inclusion of PLNG’s 26% stake in the solid cargo port at Dahej, We rule out any surprise on
LNG volumes as we already assume full capacity utilization at 17 mtpa from FY2016E
onwards. Key upside risk to our valuation stems from higher-than-expected re-gasification
tariffs.
Key concerns
Sustainability of earnings. We highlight our concerns on the sustainability of
earnings/re-gasification tariffs in light of the abnormally high profitability of the company
in 1QFY12. We compute PLNG’s adjusted RoCE at 38% based on 1QFY11 earnings; this
is significantly higher than the 16% IRR based on which the current tariffs have been
contractually agreed.
Downside risk to our volume assumptions. We note that there is no scope for upside
risk to our volume assumption given that we assume full capacity utilization at Dahej and
Kochi terminals. On the contrary, we do not rule out downside risk to our assumption in
light of unacceptability of high-priced imported LNG in India by bulk consumers. Our view
has been confirmed by the management that the current price of LNG precludes use by
power and fertilizer sector. This is also corroborated by the fact that the entire spot
volumes have been consumed by industrial units, refineries and city gas distribution (CGD)
networks.
The situation has been exacerbated by the announcement of (1) expansion of Dahej
terminal by 5 mtpa, (2) expansion of Shell’s Hazira terminal to 5 mtpa versus 3.67 mtpa
presently and (3) announcement of proposed new LNG terminals by several players
(including PLNG’s terminal on the east coast). We note that the new long-term contracts
for imported LNG are being signed at 14-15% linkage to JCC. This would rule out use by
power and fertilizer sectors. Exhibits 2 and 3 give the comparative cost for the endconsumer
of power and fertilizer sectors using different feedstocks. We do not see
consumption by refineries, industrial units and CGD networks to be able match the
proposed increase in LNG capacity in India.
Current valuations reflect optimistic assumptions. We highlight that the current stock
price is implying (1) full capacity utilization at PLNG’s Dahej and Kochi terminals and (2)
5% annual increase in re-gasification tariffs in perpetuity. We assume full capacity
utilization for PLNG’s terminal despite concerns on the acceptability of high-priced
imported LNG by bulk consumers such as power and fertilizer sectors. We model PLNG’s
re-gasification tariff to increase by 5% in each year in FY2012-14E and remain flat
thereafter. We note that higher re-gasification tariffs may sustain in the near term in the
absence of any regulations.
Other updates
Expansion of Dahej terminal by 5 mtpa. The management announced its plans to
expand the capacity at its Dahej terminal by 5 mtpa. However, the management
highlighted that it would take at least 3-4 years to commission the terminal. The cost of
the brownfield expansion is estimated at US$500 mn.
Kochi terminal. The project is expected to complete by 2QFY13E at a cost of ~`41 bn.
The company has also received Board approval to expand the Kochi terminal capacity to 5
mtpa.
Second jetty at Dahej. The company had awarded contracts for construction of the
second jetty and associated loading facilities at Dahej in January 2011. The EPC
contractors are presently carrying out basic engineering activities for construction of
marine and top-side works.
The second jetty will likely be complete by September 2013 and will likely cost `9 bn.
Petronet LNG can handle a maximum of 10.5 mtpa of imported cargo till the completion
of the second jetty and will be able to handle an additional 1.5 mtpa post the completion
of the same.
New terminal on the east coast. The management announced that it has taken the
approval of the board of directors to commission an LNG terminal on the east coast. The
management is yet to finalize a location for the same but plans to prepare a Detailed
Feasibility Report (DFR) internally over the next 2-3 months.
Solid cargo port at Dahej. The solid cargo port at Dahej implemented by Adani Petronet
(Dahej) Port Private Ltd commenced operations in FY2011. We ascribe a value of `4 to
PLNG’s 26% stake in the joint venture.
Pact with Gazprom for LNG. The management stated that it has entered into a
Memorandum of Understanding with Gazprom for supply of imported LNG and the terms
of the deal are yet to be finalized. PLNG has entered into a initial pact with Gazprom for
supply of 2.5 mtpa of LNG for 25 years with the commencement of supply likely from
FY2016.
Volumes. We model contract LNG volumes at 7.5 mn tons, 8.4 mn tons and 10.7 mn
tons in FY2012E, FY2013E and FY2014E. We have included the additional contracted
volumes of 1.5 mtpa in spot LNG volumes given limited available information on the same.
We model spot LNG imports of 3 mn tons in FY2012E, 2.75 mn tons in FY2013E and 2.5
mn tons in FY2014E versus 1.1 mn tons in FY2011.
Re-gasification tariffs. We model PLNG’s re-gasification tariff to increase by 5% in each
year in FY2012-14E and remain flat thereafter until FY2021E, the terminal year of our
DCF model (see Exhibit 5).
Exchange rate. We now assume exchange rate for FY2012E, FY2013E and FY2014E at
`44.75/US$, `45.63/US$ and `45/US$ versus `45.5/US$, `44/US$ and `44/US$
previously.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Petronet LNG (PLNG)
Energy
Full throttle. PLNG reported 1QFY12 EBITDA at `4.38 bn (+25% qoq and +77% yoy),
20% above our estimate of `3.64 bn. The positive surprise was led by (1) higher-thanexpected
re-gasification volumes at 133.4 tn BTU (+6.1% qoq and +40.2% yoy) and (2)
higher-than-expected implied re-gasification tariff at `36.8/mn BTU (+12.3% qoq and
+19.4% yoy) versus our expected `32.3/mn BTU. The management announced its plans
to expand capacity through (1) 5 mtpa expansion at Dahej and (2) new LNG terminal on
the east coast. However, we are not enthused by the same given our concerns on
acceptability of high-priced LNG in India. We maintain SELL rating on the stock with a
revised 12-month DCF-based target price of `125 (`105 previously).
1QFY12 EBIDTA 20% higher versus estimates
PLNG reported higher-than-expected 1QFY12 EBITDA at `4.38 bn versus our estimate of `3.64 bn
on account of (1) higher-than-expected re-gasification volumes at 133.4 tn BTU versus our
estimate of 126 tn BTU and (2) higher-than-expected implied re-gasification tariff at `36.8/mn BTU
versus our expected `32.3/mn BTU. The sharp increase in re-gasification tariff qoq (+12.3% qoq)
despite stable base tariff reflects significantly higher marketing margins on spot cargoes. PLNG’s
reported net income at `2.57 bn (+24.4% qoq and +130% yoy) was above our expected `1.9 bn.
Grand plans but grim reality
The management announced its plans of expanding its LNG capacity through (1) brownfield
project of 5 mtpa at Dahej and (2) new LNG import terminal on the east coast. The management
also expressed confidence in limited risk to offtake of imported LNG from its expanded capacity
even in light (1) proposed expansion of Shell’s Hazira terminal, (2) proposed new LNG terminals by
other players and (3) potential ramp-up from RIL’s KG D-6 gas. However, we would adopt a more
cautious approach in evaluating the prospects of incremental imported LNG in India in light of (1)
unacceptability of high-priced LNG by bulk consumers and (2) limited opportunities for sourcing
long-term LNG at a palatable price. We discuss the same in detail later in the note.
Revised earnings; maintain SELL with a target price of `125
We have revised our EPS estimates for FY2012-14E to `11.5, `11.4 and `10.6 from `9.3, `9.5 and
`9.4 to reflect (1) higher re-gasification volumes, (2) lower gas for internal consumption, (3)
FY2011 annual report, (4) revised rupee exchange rate assumptions and (5) other minor changes.
We assume total volumes (contracted plus spot) at 10.5 mn tons for FY2012E, 11.2 mn tons for
FY2013E and 13.2 mn tons for FY2014E. We maintain our SELL rating on PLNG with a revised 12-
month DCF-based target price of `125 (`105 previously).
Key highlights from 1QFY12 results
Exhibit 1 gives the details of PLNG’s 1QFY12 results and compares the same with 4QFY11
and 1QFY11 results.
Re-gasification tariffs increase qoq. We compute implied re-gasification tariff at
`36.8/mn BTU in 1QFY12 versus `32.7/mn BTU in 4QFY11 and `30.8/mn BTU in 1QFY11.
We are surprised by the sharp qoq increase in re-gasification tariff qoq as the base regasification
tariff was revised in January and should have been flat qoq. The sharp qoq
increase in re-gasification tariff possibly reflects significantly higher marketing margins on
spot cargoes to some extent.
Qoq increase in volumes. PLNG reported qoq increase in re-gasification volumes to
133.4 tn BTU versus 125.8 tn BTU in 4QFY11 and 95.1 tn BTU in 1QFY1 led by increased
demand for spot LNG arising from lower gas production from RIL’s KG D-6 block.
Sharp qoq increase in other income. Other income (adjusted) increased 29% qoq to
`263 mn for 1QFY12 versus `204 mn in 4QFY11. We note that the reported other
income of `314 mn for 4QFY11 included `110 mn as interest received on income tax
refund in 4QFY11.
Qoq decline in other expenditure. PLNG reported other expenditure at `457 mn for
1QFY12 versus `482 mn in 4QFY11. We note that other expenditure in 4QFY11 included
(1) expense of ~`40 mn for repair and maintenance work at Dahej terminal and (2) onetime
road construction cost of ~`45 mn at Kochi.
Maintain SELL on expensive valuations
We maintain our SELL rating on PLNG with a revised 12-month DCF-based target price of
`125 (`105 previously) noting (1) the stock offers 19% potential downside to our fair value
and (2) the stock is trading at 13.4X FY2012E EPS and 8.9X FY2012E EV/EBITDA. The
upward revision to our target price reflects (1) higher volume assumption, (2) higher
marketing margins on spot cargoes, (3) lower consumption of gas for internal use and (4)
inclusion of PLNG’s 26% stake in the solid cargo port at Dahej, We rule out any surprise on
LNG volumes as we already assume full capacity utilization at 17 mtpa from FY2016E
onwards. Key upside risk to our valuation stems from higher-than-expected re-gasification
tariffs.
Key concerns
Sustainability of earnings. We highlight our concerns on the sustainability of
earnings/re-gasification tariffs in light of the abnormally high profitability of the company
in 1QFY12. We compute PLNG’s adjusted RoCE at 38% based on 1QFY11 earnings; this
is significantly higher than the 16% IRR based on which the current tariffs have been
contractually agreed.
Downside risk to our volume assumptions. We note that there is no scope for upside
risk to our volume assumption given that we assume full capacity utilization at Dahej and
Kochi terminals. On the contrary, we do not rule out downside risk to our assumption in
light of unacceptability of high-priced imported LNG in India by bulk consumers. Our view
has been confirmed by the management that the current price of LNG precludes use by
power and fertilizer sector. This is also corroborated by the fact that the entire spot
volumes have been consumed by industrial units, refineries and city gas distribution (CGD)
networks.
The situation has been exacerbated by the announcement of (1) expansion of Dahej
terminal by 5 mtpa, (2) expansion of Shell’s Hazira terminal to 5 mtpa versus 3.67 mtpa
presently and (3) announcement of proposed new LNG terminals by several players
(including PLNG’s terminal on the east coast). We note that the new long-term contracts
for imported LNG are being signed at 14-15% linkage to JCC. This would rule out use by
power and fertilizer sectors. Exhibits 2 and 3 give the comparative cost for the endconsumer
of power and fertilizer sectors using different feedstocks. We do not see
consumption by refineries, industrial units and CGD networks to be able match the
proposed increase in LNG capacity in India.
Current valuations reflect optimistic assumptions. We highlight that the current stock
price is implying (1) full capacity utilization at PLNG’s Dahej and Kochi terminals and (2)
5% annual increase in re-gasification tariffs in perpetuity. We assume full capacity
utilization for PLNG’s terminal despite concerns on the acceptability of high-priced
imported LNG by bulk consumers such as power and fertilizer sectors. We model PLNG’s
re-gasification tariff to increase by 5% in each year in FY2012-14E and remain flat
thereafter. We note that higher re-gasification tariffs may sustain in the near term in the
absence of any regulations.
Other updates
Expansion of Dahej terminal by 5 mtpa. The management announced its plans to
expand the capacity at its Dahej terminal by 5 mtpa. However, the management
highlighted that it would take at least 3-4 years to commission the terminal. The cost of
the brownfield expansion is estimated at US$500 mn.
Kochi terminal. The project is expected to complete by 2QFY13E at a cost of ~`41 bn.
The company has also received Board approval to expand the Kochi terminal capacity to 5
mtpa.
Second jetty at Dahej. The company had awarded contracts for construction of the
second jetty and associated loading facilities at Dahej in January 2011. The EPC
contractors are presently carrying out basic engineering activities for construction of
marine and top-side works.
The second jetty will likely be complete by September 2013 and will likely cost `9 bn.
Petronet LNG can handle a maximum of 10.5 mtpa of imported cargo till the completion
of the second jetty and will be able to handle an additional 1.5 mtpa post the completion
of the same.
New terminal on the east coast. The management announced that it has taken the
approval of the board of directors to commission an LNG terminal on the east coast. The
management is yet to finalize a location for the same but plans to prepare a Detailed
Feasibility Report (DFR) internally over the next 2-3 months.
Solid cargo port at Dahej. The solid cargo port at Dahej implemented by Adani Petronet
(Dahej) Port Private Ltd commenced operations in FY2011. We ascribe a value of `4 to
PLNG’s 26% stake in the joint venture.
Pact with Gazprom for LNG. The management stated that it has entered into a
Memorandum of Understanding with Gazprom for supply of imported LNG and the terms
of the deal are yet to be finalized. PLNG has entered into a initial pact with Gazprom for
supply of 2.5 mtpa of LNG for 25 years with the commencement of supply likely from
FY2016.
Maintain SELL on expensive valuations
We maintain our SELL rating on PLNG with a revised 12-month DCF-based target price of
`125 (`105 previously) noting (1) the stock offers 19% potential downside to our fair value
and (2) the stock is trading at 13.4X FY2012E EPS and 8.9X FY2012E EV/EBITDA. The
upward revision to our target price reflects (1) higher volume assumption, (2) higher
marketing margins on spot cargoes, (3) lower consumption of gas for internal use and (4)
inclusion of PLNG’s 26% stake in the solid cargo port at Dahej, We rule out any surprise on
LNG volumes as we already assume full capacity utilization at 17 mtpa from FY2016E
onwards. Key upside risk to our valuation stems from higher-than-expected re-gasification
tariffs.
Key concerns
Sustainability of earnings. We highlight our concerns on the sustainability of
earnings/re-gasification tariffs in light of the abnormally high profitability of the company
in 1QFY12. We compute PLNG’s adjusted RoCE at 38% based on 1QFY11 earnings; this
is significantly higher than the 16% IRR based on which the current tariffs have been
contractually agreed.
Downside risk to our volume assumptions. We note that there is no scope for upside
risk to our volume assumption given that we assume full capacity utilization at Dahej and
Kochi terminals. On the contrary, we do not rule out downside risk to our assumption in
light of unacceptability of high-priced imported LNG in India by bulk consumers. Our view
has been confirmed by the management that the current price of LNG precludes use by
power and fertilizer sector. This is also corroborated by the fact that the entire spot
volumes have been consumed by industrial units, refineries and city gas distribution (CGD)
networks.
The situation has been exacerbated by the announcement of (1) expansion of Dahej
terminal by 5 mtpa, (2) expansion of Shell’s Hazira terminal to 5 mtpa versus 3.67 mtpa
presently and (3) announcement of proposed new LNG terminals by several players
(including PLNG’s terminal on the east coast). We note that the new long-term contracts
for imported LNG are being signed at 14-15% linkage to JCC. This would rule out use by
power and fertilizer sectors. Exhibits 2 and 3 give the comparative cost for the endconsumer
of power and fertilizer sectors using different feedstocks. We do not see
consumption by refineries, industrial units and CGD networks to be able match the
proposed increase in LNG capacity in India.
Current valuations reflect optimistic assumptions. We highlight that the current stock
price is implying (1) full capacity utilization at PLNG’s Dahej and Kochi terminals and (2)
5% annual increase in re-gasification tariffs in perpetuity. We assume full capacity
utilization for PLNG’s terminal despite concerns on the acceptability of high-priced
imported LNG by bulk consumers such as power and fertilizer sectors. We model PLNG’s
re-gasification tariff to increase by 5% in each year in FY2012-14E and remain flat
thereafter. We note that higher re-gasification tariffs may sustain in the near term in the
absence of any regulations.
Other updates
Expansion of Dahej terminal by 5 mtpa. The management announced its plans to
expand the capacity at its Dahej terminal by 5 mtpa. However, the management
highlighted that it would take at least 3-4 years to commission the terminal. The cost of
the brownfield expansion is estimated at US$500 mn.
Kochi terminal. The project is expected to complete by 2QFY13E at a cost of ~`41 bn.
The company has also received Board approval to expand the Kochi terminal capacity to 5
mtpa.
Second jetty at Dahej. The company had awarded contracts for construction of the
second jetty and associated loading facilities at Dahej in January 2011. The EPC
contractors are presently carrying out basic engineering activities for construction of
marine and top-side works.
The second jetty will likely be complete by September 2013 and will likely cost `9 bn.
Petronet LNG can handle a maximum of 10.5 mtpa of imported cargo till the completion
of the second jetty and will be able to handle an additional 1.5 mtpa post the completion
of the same.
New terminal on the east coast. The management announced that it has taken the
approval of the board of directors to commission an LNG terminal on the east coast. The
management is yet to finalize a location for the same but plans to prepare a Detailed
Feasibility Report (DFR) internally over the next 2-3 months.
Solid cargo port at Dahej. The solid cargo port at Dahej implemented by Adani Petronet
(Dahej) Port Private Ltd commenced operations in FY2011. We ascribe a value of `4 to
PLNG’s 26% stake in the joint venture.
Pact with Gazprom for LNG. The management stated that it has entered into a
Memorandum of Understanding with Gazprom for supply of imported LNG and the terms
of the deal are yet to be finalized. PLNG has entered into a initial pact with Gazprom for
supply of 2.5 mtpa of LNG for 25 years with the commencement of supply likely from
FY2016.
Volumes. We model contract LNG volumes at 7.5 mn tons, 8.4 mn tons and 10.7 mn
tons in FY2012E, FY2013E and FY2014E. We have included the additional contracted
volumes of 1.5 mtpa in spot LNG volumes given limited available information on the same.
We model spot LNG imports of 3 mn tons in FY2012E, 2.75 mn tons in FY2013E and 2.5
mn tons in FY2014E versus 1.1 mn tons in FY2011.
Re-gasification tariffs. We model PLNG’s re-gasification tariff to increase by 5% in each
year in FY2012-14E and remain flat thereafter until FY2021E, the terminal year of our
DCF model (see Exhibit 5).
Exchange rate. We now assume exchange rate for FY2012E, FY2013E and FY2014E at
`44.75/US$, `45.63/US$ and `45/US$ versus `45.5/US$, `44/US$ and `44/US$
previously.
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