Buy Petronet LNG; target of Rs 176: PLilladher

Prabhudas Lilladher is bullish on Petronet LNG and has recommended buy rating on the stock with a target of Rs 176 in its July 31, 2012 research report.

“Petronet LNG’s (PLNG’s) Q1FY13 result was better than our expectation on the EBITDA and bottom-line front. Top-line registered a growth of 52.1% YoY to Rs70.3bn (Rs46.23bn) on account of 61% YoY growth in realisations, coupled with a 4.8% YoY decline in volumes. EBITDA/TBTU witnessed an expansion, from Rs31.3/TBTU in Q4FY12 to Rs35.9/TBTU in Q1FY13, higher than our estimate of Rs31.2/TBTU. Bottom-line, during the quarter, stood at Rs2,702m (Rs2,570m), an increase of 5% YoY as against our expectation of Rs2,390m during the quarter.”

“Our calculation suggests that the company made gross marketing profits on spot volumes of Rs1,070m (20% of the reported gross margins for the quarter), despite a drop in spot volumes (20.5 TBTU v/s 26.5 TBTU in Q4FY12). Total volumes declined to 127TBTU in Q1FY13 compared to 133.4TBTU in Q4FY12, lower than our estimate of 135.5 TBTU. We believe, PLNG has witnessed a 119% QoQ growth in marketing margins from US$0.44/mmbtu in Q4FY12 to US$0.97/mmbtu in Q1FY13. The share of marketing margins in overall gross margins has increased from 12% in Q4FY12 to 20% in Q1FY13. EBITDA performance was also aided by ~Rs200m savings on charter hire expenses on one of their LNG vessels (dry docked for a month during the quarter).”

“PLNG’s utility nature of business (stable regasification margins and term contracts), low regulatory risks (regasification margins are not currently under PNGRB’s purview) and expanding volumes on account of strong demand estimates, hold it in good stead. We believe the concerns over the regulatory intervention on the marketing margin front as well as PNGRB regulating regas charges are exaggerated. We expect gradual de-risking of the Kochi terminal, going ahead, which augurs well for the company’s business model. Increase in news flows on the new Gangavaram LNG terminal and capacity expansion at Dahej are likely to be growth triggers for the company, going ahead,” says Prabhudas Lilladher research report. 

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