Hold Petronet LNG; target of Rs 186: Sushil Finance

Sushil Finance has recommended hold rating on Petronet LNG with a target of Rs 186 in its October 25, 2012 research report.

“Petronet LNG Ltd. (PLL) has reported good set of numbers for the quarter ended Sept’12 which was slightly above our expectations. Revenues & PAT grew by ~7% & 16% QoQ to Rs.75,486 mn & Rs.3,148 mn respectively.    Revenues grew by ~7% sequentially to Rs.75,486 mn in Q2FY13 mainly driven by higher volumes which improved by ~6% QoQ to 135 Tbtu’s. Volumes were back to normal (~106% Utilization) after witnessing decline in the last quarter which was majorly on account of major maintenance shutdown of 5 fertilizer plants in April resulting into lower volume offtake. Management anticipates strong demand for gas to continue on back of lower domestic gas supplies & fall in spot prices ($11-12/mmbtu).”

“Higher volumes coupled with better marketing margins on spot cargoes led to Operating profit growth of ~13% QoQ to Rs.5184 mn in Q2FY13, whereas margins improved marginally by 40 bps to 6.9%. Marketing margins stood at ~$0.85 v/s $0.75 in Q1FY13. Net profit grew by ~16% QoQ from Rs.2708 mn to Rs.3148 mn whereas margins stood at 4.2%. EPS for Q2FY13 stood at Rs.4.2 v/s Rs.3.6 in Q1FY13. Capacity expansions at Kochi & Dahej are on track & management expects the Kochi terminal to get operational in Q4FY13 (Jan’13). However, delay in pipeline could result in lower volumes for the initial year (< 1 MT). The 2nd jetty at Dahej is likely to get operational by Q4FY14. Of the total planned investment of ~Rs.53 bn, the Company has already spent Rs.39 bn till Sept’12. In case of Gangavaram, preliminary work like front-end engineering has begun & the Company expects the terminal to get operational by 2016-17.”

“Petronet has reported good set of numbers for the quarter ended Sept’12 which was slightly above our expectations. Aggressive capex plan to meet the strong domestic gas demand to result in strong volume growth in future. Also, healthy balance-sheet along with strong operating cash-flows not only provides better financial stability but would also aid funding huge expansion plan in future. At the CMP of Rs.164, the stock is quoting at 11.1x and 2.3x its FY14E EPS & BV of Rs.14.8 and Rs.70.0 respectively. Hence, considering the sound business model, huge capacity expansion coupled with strong financials, we maintain our positive outlook on the stock & recommend ‘hold’ with a revised price target of Rs.186 based on DCF methodology,” says Sushil Finance research report.

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