Buy Petronet LNG; target of Rs 186: Nirmal Bang

Nirmal Bang is bullish on Petronet LNG and has recommended buy rating on the stock with a target of Rs 186, in its August 1, 2012 research report.

“Petronet LNG reported a net profit of Rs2,708mn for 1QFY13 (up 10.5 % QoQ, 5.5% YoY) higher by 13%/18% compared to Bloomberg/our estimates, respectively. Its higher earnings were aided by cost saving of Rs200mn on time charter rates and higher marketing margin in a buoyant spot market, despite volume declining on plant shutdown by fertiliser companies. Adjusted for one-time cost saving, net profit was up 5% QoQ. We believe Petronet LNG would remain an important clog wheel to play imported gas theme in times of a gas-deficit market in India. We retain our Buy rating on the stock with a revised target price of Rs186 based on DCF methodology.”

“The company’s netback margin in 1QFY13 inched up to Rs42.01/mmBtu from Rs36.75/mmBtu in 4QFY12. It earned higher netback margin on: (1) Cost saving to the tune of Rs200mn on time charter rates, as one of the three ships hired was on dry docking, and (2) Higher marketing margin. Both factors led realisation to improve 6.27% QoQ, while gas cost was up 6.23%. Blended gas cost in 1QFY13 touched US$10.22/mmBtu compared to US$9.62/mmBtu. The company’s gas price (FoB) for Rasgas touched US$9.0/mmBtu. Gas delivered in 1QFY13 declined 6% QoQ & 4% YoY to 127tBtu. Out of 127tBtu, 96tBtu was delivered on long-term basis, 21tBtu on spot basis and the balance 11tBtu under regasification service. The management attributed the fall in volume to shutdown of five fertiliser plants in April 2012, but volume from these units recovered from May 2012. We have assumed volume of 576tBtu/645tBtu (11.3mmtpa/12.66mmtpa) for FY13/FY14E, respectively, of which assumed volume for Kochi terminal stands at 25.5tBtu/76.48tBtu for FY13E/FY14E.”

“Petronet LNG stock presently languishes on account of: (1) Likely lower utilisation of newly built Kochi terminal in FY13-14 depressing earnings due to higher interest costs and depreciation, (2) Inability to sign long-term contracts for gas off-take, (3) Major boost to incremental volume starting only from 2HFY14, and (4) Lack of a clear regulatory environment for new RLNG terminals. With the stock trading at 10x FY13E EPS, we see it as an attractive opportunity to participate in a structural five-year growth story with a volume/EPS CAGR of 13%/18%, with least regulatory risk. We retain our Buy rating on the stock with a target price of Rs186, says Nirmal Bang research report.

Institutional holding more than 40% in Indian cos

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