Buy Petronet LNG; target of Rs 185: Motilal Oswal

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Buy Petronet LNG; target of Rs 185: Motilal Oswal

Motilal Oswal is bullish on Petronet LNG and has recommended buy rating on the stock with a target of Rs 185 in its January 28, 2012 research report.

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Motilal Oswal is bullish on Petronet LNG and has recommended buy rating on the stock with a target of Rs 185 in its January 28, 2012 research report.

"Petronet LNG's 3QFY12 reported EBITDA of INR5b (+46% YoY, +12% QoQ) was ahead of estimates led by (1) higher volumes and (2) marketing margins. PAT stood at INR2.95b (+73% YoY, +13% QoQ). Variation at PAT level was higher than EBITDA primarily due to lower interest outgo INR345m (v/s est INR495m) led by INR5b debt repayment, partially compensated by lower other income at INR164m (v/s est INR200m) and higher effective tax rate at 32.7% (v/s est of 32.1%). Total gas sales in 3QFY12 stood at 145tbtu (+21% YoY and +7% QoQ) implying a capacity utilization of 115% and included 98tbtu of long-term, 25tbtu of spot and 22tbtu of re-gas services volumes. We compute marketing margins on spot volumes at ~INR35/mmbtu (similar to re-gas charges on long-term contracts)."

"PLNG's Kochi terminal is on track to commission in 3QFY13. It indicated that post the pipeline connectivity to Bangalore in June 2013, volumes would ramp-up from the initial levels of 0.2-1mmtpa (BPCL's Kochi refinery and FACT's fertilizer plant). PLNG has finalized the location of its 5mmtpa East Coast terminal as Gangavaram in Andhra Pradesh, and is currently finalizing DFR (likely by March-12) and post that will go for board approval. We are increasing our FY12/FY13 EPS by ~7%/5% to INR14.7/14.2 led by higher utilization at Dahej. We model Dahej volumes at 11.1/11.2mmt (earlier at 10.7/11.1) in FY12/FY13 and Kochi volumes at 0.25/1.25mmt in FY13/ FY14. Expect FY13 earnings to be lower than FY12: (1) Kochi terminal depreciation would start coming in, but corresponding revenue contribution would only start towards FY14, and (2) Lower marketing margin assumption at INR23/mmbtu v/s ~INR30/mmbtu in 9MFY12. The stock trades at 11.6x FY13E EPS of INR14.2/sh."

"We are reducing long term marketing margin to nil v/s earlier at INR20/mmbtu and hence maintain our target price of INR185 based on average of two valuation methodologies (1) P/E (13x FY13E EPS), and (2) DCF (INR185/ sh). Maintain Buy," says Motilal Oswal research report.    

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To read the full report click on the attachment