Buy Petronet LNG; target of Rs 205: Motilal Oswal

Motilal Oswal is bullish on Petronet LNG and has recommended buy rating on the stock with a target of Rs 205 in its August 1, 2012 reports.

“Petronet LNG's (PLNG) reported numbers for 1QFY13 were ahead of consensus/our estimates. EBITDA was INR4.6b v/s our estimate of INR4b. PAT was up 5% YoY and 10% QoQ at INR2.7b v/s our estimate of INR2.3b. Profitability was higher than we had expected despite lower volumes (127tbtu v/s our estimate of 131tbtu) due to: (a) higher implied marketing margin of USD0.64/mmbtu (v/s our estimate of USD0.28/mmbtu), and (b) INR200m savings on account of dry docking of one charter ship. Variation (in percentage terms) is higher at the PAT level due to lower interest expense and higher other income.”

“PLNG expects to commission its Kochi terminal by December 2012 and also expects simultaneous completion of phase-I (44km) of its Kochi-Bangalore pipeline, through which it will supply gas. Further, it expects to complete (a) its second jetty project at Dahej by 4QFY14 (additional capacity of 3mmt), (b) Dahej expansion by the end of 2015 (taking overall capacity to 18mmt), and (c) Gangavaram terminal by the end of 2016 and interim FSRU (floating storage and re-gasification unit) by the end of 2014.”

“We expect PLNG to continue to benefit from India's large gas deficit through (a) higher utilization (>100%) levels, and (b) higher marketing margins on spot volumes. FY13 earnings would be muted - while the company would begin to account for Kochi terminal's depreciation in FY13, corresponding revenue contribution would start only in FY14. PLNG's next earnings growth cycle would come post FY13, led by (1) volume ramp-up at Kochi, and (2) commissioning of the second jetty at Dahej. We model Dahej volumes at 10.6/11.5mmt and Kochi volumes at 0.2/1.1mmt for FY13/14. The stock trades at 9.8x FY14E EPS of INR15. Our target price of INR205 is based on the average of two valuation methodologies (1) P/E (13x FY14E EPS), and (2) DCF (INR215). Maintain Buy,” says Motilal Oswal research report.    

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