Accumulate Petronet LNG - Kotak Securities

In Q3FY13, we expect PLNG to commission its green field Kochi RLNG (Re-gasified liquefied natural gas) plant (5 MMTPA capacity) which will improve its LNG volumes. However, the full benefit of the same will be reflected in FY15E and beyond. Currently, ninety seven percent of work in the first two phases of the Rs.42 Bn terminal is completed.

- With the commissioning of Kochi terminal (investment of Rs.42 Bn), PLNG will meet the huge gas demand of south India. Initially, LNG would be supplied to plants within 50 sq km of Kochi. In the next phase, LNG would reach Bangalore and Mangalore through pipelines. It is expected that the phase-I of Kochi-Bangalore pipeline (44km) will be complete in FY13E, through which it will supply imported LNG.

- Further, it is expected that PLNG would complete its second jetty project (Capex of Rs. 9 Bn) at Dahej by Q4FY14 (which will enable it to improve utilization of its existing capacity by another 20-25%) and Dahej expansion (5 MMTPA with an investment of Rs.30 Bn) by the end of 2015.

- We believe additional jetty and associated unloading terminal expected at Dahej will allow PLNG to bring in bigger vessels which will lower the turnaround time and will improve operational efficiencies.

- PLNG is also planning to set-up Gangavaram terminal by the end of 2016 and interim FSRU (floating storage and re-gasification unit) by the end of 2014.

- Together, this will take PLNG's overall capacity to 18 MMTPA from current 10 MMTPA. The Company long term plan is to build a capacity of 25 mmtpa by 2015.

- We believe the gas volumes in Q2FY13 will be better than in Q1FY13 resulting in better profitability. In Q1FY13, RLNG volumes were lower due to temporary shutdown of 4-5 fertilizer plants (on account of normal maintenance) resulting in lower demand.

Valuation & Recommendation

- PLNG's revised earnings estimate Rs.14.59 FY13E (earlier Rs.13.42) and Rs.17.4 FY14E.

- On the basis of our estimates, the stock at current market price of Rs.150 is attractively valued at 6.6x EV/EBIDTA, 10.3x P/E, 8.7x P/CEPS and 2.56x P/BV on FY13E earnings.

- Due to limited upside potential and fair valuations, we recommend Accumulate on PLNG with revised 12-month DCF price target of Rs.164 (earlier Rs.156). We have assumed WACC of 11.9% and cost of equity at 13.8%. Our positive view on PLNG is based on strong volume growth expectation.

- Further, commissioning of Kochi terminal will be a trigger for the stock, we opine. We believe PLNG should benefit from gas shortages and rising domestic natural gas demand over the long term.

Other Developments:

- India's natural gas deficit has widened with the fall in the domestic gas supply and rising natural gas demand both from city gas distribution (CGD) and industrial segment. Domestic gas supply is under pressure due to natural gas production decline from KG-D6 field to less than 42 million standard cubic meters per day (mmscmd).

Source : Equity Bulls

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