Petronet LNG - Lower volume offtake; slower Kochi ramp-up; upgrade to Buy - BRICS

Petronet LNG's profit grew 19% yoy to Rs.2.45 bn on a 7% increase in volume to 135 TBtu (our estimate 139 TBtu) and a 10% rise in gross margins to Rs.36.6/mmbtu (our estimate Rs.43/mmbtu). We are lowering FY13 and 14 volume estimates by 14% and 20% on slower Kochi ramp-up. Our DCF based 12 month target falls by 7% to Rs.173 on changes in assumptions and as we roll forward to Q4FY13 estimates. Upgrade to BUY on 23% upside to our target.

Profits lower than our estimate of Rs.2.8 bn on lower volumes

Profits were lower than our estimates because volume offtake was lower than we estimated (maintenance shutdown at some fertiliser plants in March 2012).

Cut FY13-14 volume estimates by 14%, 20% on slower Kochi ramp-up

We are lowering our volume estimates for FY13 and FY14 by 14% and 20% to factor in management's guidance of slow ramp-up in Kochi (1-1.5 mmtpa in FY14 due to slower offtake in new markets vs. our expectation of 3.5 mmtpa) and the possibility of Dahej throughput settling at 10.5-10.7 mmtpa until the second jetty is ready in FY14 (we expected 11.7 mmtpa).

As a result of our new volume assumptions, our net profit for FY13 and FY14 falls 4% and 7% - revised EPS at Rs.15.2 and Rs.15.8.

Upgrade to Buy on 23% upside to our target

As a result of changes in estimates and rollover to FY13 estimates, our DCF value for the stock falls 7% to Rs.173, implying a 23% upside. Given the shortage of domestic gas, Petronet LNG will be in a good position to operate its terminals at high utilisation rates. We have not included upside from Dahej expansion with take-or-pay arrangement (Rs.18/share, an announcement of outline arrangement is imminent).

Source : Equity Bulls

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