Buy Petronet LNG; target of Rs 185: Motilal Oswal

Motilal Oswal is bullish on Petronet LNG and has recommended buy rating on the stock with a target of Rs 185 in its April 25, 2012research report.

“Petronet LNG (PLNG) reported EBITDA of INR3.7b (up 4% YoY, but down 27% QoQ) for 4QFY12, was below our estimate due to (1) lower volumes at 135tbtu (v/s est of 145tbtu), and (2) lower marketing margins. Volumes were impacted by lower off-take from (1) fertilizer plants due to seasonal maintenance shutdowns, and (2) power plants due to low demand for high-priced merchant power. The shutdown of fertilizer plants also resulted in APM gas being available to other customers who shifted from LNG to APM gas in 4QFY12.”

“PAT increased 19% YoY (but down 17% QoQ) to INR2.45b, lower than our estimate of INR2.97b. 4QFY12 EPS of INR3.3 translates into an annualized EPS of INR13.2 v/s FY12 EPS of INR14.1. Total gas sales during the quarter were 135tbtu (up 7% YoY and down 7% QoQ) implying capacity utilization of 107%, and included 93.5tbtu of long-term, 26.4tbtu of spot and 15tbtu of re-gas services volumes. We compute marketing margins on spot volumes at ~INR20/mmbtu (v/s INR36/mmbtu in 3QFY12) on spot cargoes over and above the company's base re-gasification charges of INR35/mmbtu. We have cut our FY13/14 earnings estimates by 8% to INR13.1 and 2% to INR15.5, respectively, led by (1) lower utilization at Dahej (107% v/s 112% earlier), and (2) lower marketing margins (INR15/15/mmbtu v/s INR23/20/ mmbtu). We model Dahej volumes at 10.7/11.5mmt (earlier 11.2/12.2mmt) and Kochi volumes at 0.25/1.25mmt in FY13/14, respectively.”

“Valuation and view: We expect PLNG's earnings to remain muted in FY13 as Kochi terminal's depreciation would start coming in, corresponding revenue contribution would start accruing only in FY14. We believe the next cycle of earnings growth would come post FY13 led by (1) volume ramp-up at Kochi, (2) second jetty commissioning at Dahej, and (3) progress on Dahej expansion and Gangavaram terminal. The stock trades at 10.6x FY13E EPS of INR13.1. Maintain our target price of INR185 based on the average of two valuation methodologies (1) P/E (13x FY13E EPS), and (2) DCF (INR199). Maintain Buy,” says Motilal Oswal research report.   

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