Disappointing performance… • Petronet LNG :: ICICI Securities, report

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Disappointing performance… • Petronet LNG reported its Q3FY15 numbers with revenues at | 11,198.5 crore (above our estimate of | 10490.9 crore) and PAT at | 162.4 crore (below our estimate of | 254.8 crore) • Sales volume at 141.4 tbtu was lower than our estimate of 147.1 tbtu. The blended margin of | 33.3/mmbtu was lower than our estimate of | 41.6/mmbtu mainly due to lower spot/short-term volumes and margins • Subsequently, EBITDA at | 340.8 crore was below our estimate of | 505.4 crore and PAT came at | 162.4 crore, below our estimate of | 254.8 crore Disappointing performance; scenario may improve Total sales volume (long-term + spot/short-term + tolling) declined from 150.5 tbtu in Q2FY15 to 141.4 tbtu in Q3FY15. EBITDA reduced to | 340.8 crore (lower than our estimate of | 505.4 crore) mainly due to lower than estimated spot/short-term margins. Petronet’s blended margins of | 33.3/mmbtu (vs. | 42/mmbtu in Q2FY15) is a concern in the short term due to a sharp decline in LNG prices. However, we expect an improvement in future on stabilisation of LNG prices and estimate blended margins at | 43.3/mmbtu for FY16E and | 45.1/mmbtu for FY17E. On the operational front, performance of the Dahej terminal remained strong with capacity utilisation of 110%. However, the Kochi terminal that became operational on September 10, 2013 continues to disappoint. Volumes at the Kochi terminal remained at a meagre 1 tbtu due to a delay in commissioning of Phase II of the Kochi Mangalore Bangalore pipeline. The Tamil Nadu section (connecting to Bangalore) will get further delayed as the final decision on the project is still pending. Therefore, we expect a volume ramp up at Kochi only after two years. Petronet had signed an agreement with three companies including British Gas in Q2FY15 allowing it to use the Kochi terminal for storage purpose, which will help the company to mitigate losses. The first cargo for loading-unloading was completed in the current quarter. We have estimated LNG volumes of 588.5 tbtu and 661.5 tbtu for FY16E and FY17E, respectively. Focus on contracted, tolling volumes to reduce volatility The Dahej expansion to 15 MMTPA is on schedule and expected to be completed by November 2016. Of this 15 capacity, 14.75 MMTPA has already been booked. This focus on tolling volumes will reduce the sourcing and earning volatility risk. The company has completed the study for further expansion of 2.5 MMTPA of its Dahej plant and will submit the detailing & design to the board for a go-ahead to the project. The company has got all approvals for the Gangavaram terminal at Andhra Pradesh. The management has guided that it will take three years to complete the project. The company is awaiting pipeline connectivity and contracts commitment after which it would go ahead with the execution of the project. This is expected to be commissioned by FY18-19 based on demand needs. Primary LNG play in India With India continuing to be significantly short of natural gas supply, Petronet LNG will benefit as the primary play on increasing usage of LNG. In the long term, we expect volumes to remain strong and contribute significantly from FY18 onwards. We have valued the stock based on DCF methodology (WACC 12%, terminal growth 3%) to arrive at a price target of | 216 with a BUY recommendation.

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