Petronet LNG - Higher margin on spot LNG & one offs aid profitability despite QoQ decline in volumes - Centrum

Petronet reported 5.5% QoQ jump in profitability at Rs2.7bn despite 4.8% sequential fall in re-gasification volumes owing to higher marketing margin on spot LNG sales and Rs200mn benefit from dry docking of one of the chartered ships. Re-gasification volumes were impacted due to sudden fall in demand from fertiliser players post shut down of 5 fertiliser plants in April. Demand improved from May and currently utilisation is in excess of 100%. We remain optimistic on Petronet as natural gas demand in India is strong and Petronet with its upcoming capacity is well placed to capitalise on this opportunity. Maintain 'Buy'.

- Revenue jump due to higher LNG prices and rupee depreciation: Petronet reported 52.1% YoY and 10.3% QoQ surge in revenues owing to higher LNG prices coupled with rupee depreciation (about 8% sequentially).

- Lower demand leads to lower re-gasification volumes: During the month of April, LNG demand declined due to shut downs of 5 fertiliser plants. Thus re-gasification income for services offered to GAIL and GSPC was affected in Q1. However, demand started recovering from May and currently the utilisation is in excess of 100% (Q1 capacity utilisation at 100%). The company processed a total of 127.0TBTUs of LNG of which 96.0TBTUs were long-term volumes, 20.5TBTUs spot volumes and10.5TBTUs re-gasification services offered to GAIL and GSPC. Higher re-gasification charges on spot LNG led to 15.2% YoY and 9.6% QoQ jump with blended re-gasification charges at Rs42.4/mmbtu.

- Higher re-gasification charges, one off benefit leads to healthy bottomline: Petronet benefitted to the tune of about Rs200mn due to dry docking of one of their chartered ships during April. Together with higher re-gasification charges the bottom-line jumped by 5.5% YoY and 10.5% QoQ to Rs2.7bn beating our and street estimates.

- Global LNG availability to improve, prices soften: Global LNG availability is expected to improve by about 10-15mmt due to the commissioning of new capacities while start up of nuclear plants in Japan would also add LNG in the global system. Prices have also softened to about US$11-12/mbtu which would favor domestic consumers. Kochi terminal, Dahej Jetty and Dahej expansion is proceeding as per schedule. We believe Petronet is well positioned to capitalise on the burgeoning natural gas demand in India and hence remain optimistic on the stock. We have partially lowered our volume estimates for FY13E and FY14E and changed our re-gasification tariff for Kochi from Rs45/mmbtu to Rs50/mmbtu. Based on the new numbers we maintain 'Buy' rating on the stock with a DCF based price target of Rs181.

Source : Equity Bulls

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