Buy Petronet LNG; target of Rs 195: FinQuest Securities

FinQuest Securities is bullish on Petronet LNG and has recommended buy rating on the stock with a target of Rs 195 in its October 26, 2012 research report.

“Petronet LNG, in the quarter, sales increased 40.7% Y-o-Y and 7.4% sequentially to Rs. 75.5 bn while PAT increased 20.9% Y-o-Y and 16.2% sequentially to Rs. 3.15 bn, ahead of our estimates of Rs. 2.48 bn, despite a lower than expected re-gasification volume on account of higher than expected trading margins. In the quarter, the company regassified 135 TBTU of LNG, flat on Y-o-Y basis, however, increased 6.3% sequentially, as against our expectations of 137.2 TBTU. In the quarter, PLNG capacity utilization increased to ~106% as against ~100% in Q1FY13 and ~107% in Q2FY12.”
“In the quarter, the gross margins increased 34% Y-o-Y and 9% sequentially to Rs. 45.7 per mmbtu as against our estimate of Rs. 39 per mmbtu, on account of higher trading/marketing margins and internal efficiencies. In Q2FY13, we estimate PLNG's marketing/trading margin increased 107% Y-o-Y and 13% sequentially to ~$0.83 per mmbtu; lower LNG prices and company's ability to source better priced cargoes could have aided the margins. Amid the growing demand-supply deficit in the domestic gas markets, LNG will hold the key to plug the deficit. The management of the company highlighted that the expansion projects of the company are on track. PLNG has signed take or pay contract for 2.5 mmt of the 5 mmt Dahej expansion with GAIL, thus, effectively booking two-third of its 15 mmt expanded capacity, while the company is likely to book another 1 mmt with GSPC. Also, Kochi terminal is on track and is likely to get commission in Q4 FY13. The first phase of GAIL's Kochi-Mangalore pipeline is completed and the consumer end facility conversion is in process. Although the initial volumes from the Kochi terminal are likely to be marginal; while the increase in volumes would come by the end of 2013 when the second phase of the Kochi- Koottanad- Bangalore-Mangalore Pipeline is likely to get operational.”
“Net sales and PAT are likely to increase at a CAGR of 28.6% and 5.7% respectively over FY11-FY14E while EBIDTA is expected to grow at a CAGR of 7.4% in the same period on account of increase in the regassification volume coupled with increase in the regassification margins. We assume 5% escalation in the regassification tariff at the Dahej terminal till FY15E and remain flat afterwards and, for the Kochi terminal; we assume a regassification margin of Rs. 50 per mmbtu. We assume marketing margin of Rs.25-20 per mmbtu on spot cargoes/ short term cargoes over FY12-FY15E and long term marketing margin of Rs. 10 per mmbtu. At CMP, PLNG is trading at 10.8x FY13E and 10.6x FY14E EPS of Rs. 15.4and Rs. 15.8 respectively and at an EV/EBIDTA of 7.2x FY13E and 6.0x FY14E. We maintain buy rating on PLNG with a DCF based target price of Rs.195 per share, implying a potential return of 17.5% from the current levels,” says FinQuest Securities research report.  Non-Institutions holding more than 90% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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