Buy Petronet LNG; target of Rs 194: Emkay

“Petronet LNG Ltd, the country’s biggest gas importer, will operate its upcoming 5mtpa Kochi terminal at just 20% of its capacity for a year, due to delay in commissioning of the supply pipeline. The terminal will supply gas to various consumers through the 1,114-km pipeline from the LNG terminal at Puthuvypeen, Kochi, to Mangalore and Bangalore. The pipeline is being constructed by state-run GAIL (India) Ltd, which is also a promoter of Petronet, at a cost of Rs.3700mn. The 1st phase of the pipeline from the terminal to Ambalamukal and Udyogamandal areas will be ready by October and could carry around 1mtpa gas to consumers like Bharat Petroleum Corp Ltd’s refinery, Travancore Ltd’s fertiliser plant and other Fertilizer and Chemical plants. As per the management, the Kochi terminal will be operational by October 2012. However, the Mangalore-Bangalore pipeline route, which attracts the maximum customers, has been delayed. This route is likely to be commissioned earliest by 2013-end.”

“Q4FY12 results were below our and street expectations mainly due to lower volume offtake and decline in marketing margins. We expect volume offtake in the current quarter would be slightly lower than the previous quarter of 135tbtu, thereby signaling weakness in domestic demand. Also, delay in commissioning of the Kochi-Mangalore- Bangalore has further hit our volume assumption for FY14E, thereby lowering our earnings estimate by 6.5% to Rs.14.2. Based on our DCF valuation, our TP would decline only to the extent of 0.5% to Rs.194, factoring the future volume growth. However the recent news on proposed cap on gas marketing margin which is to be decided by PNGRB would keep the stock under pressure until any clarity emerges. We maintain Buy with TP of Rs 194, currently, stock trades at 9.7x FY13E EPS and 2x P/BV,” says Emkay Global Financial Services research report. 

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