Petronet LNG - Stellar quarter; but future earnings coulds disappoint; SELL - Religare

Petronet LNG posted an above-expected Q2 PAT at Rs.3.15 bn (Rs.2.7 bn est.) on (a) higher-than-estimated re-gas volumes of 135tbtus, (b) operational efficiency gains, and (c) trading margins of US$0.43/mmbtu. The Kochi terminal, set to commission in Q4 would likely see low utilisation in initial years. Also, a low consumer appetite would keep re-gas charges capped at Kochi, making the project RoE-dilutive. Moreover, any sharp improvement in volumes processed is unlikely before FY15. SELL with a revised TP of Rs.160/share.

- Impressive PAT; could come-off in quarters ahead: PLNG reported above-expected Q2FY13 profits due to processing of higher-than-estimated total/short-term volumes of 135/27.4tbtus (vs. 130/20tbtus estimated). However, long-term (Rasgas) volumes processed were lower at 90tbtus, implying that spot/short-term volumes over the coming quarters could be lower or flat at best, and therefore PLNG could see earnings pressures on account of lower trading profits generated.

- Kochi terminal to commission in Q4; initial utilisation to be low: A lack of mature markets and ready consumers along with limited connectivity would keep the Kochi terminal utilisation low for at least the next 34 years. This would limit PLNG's ability to levy high re-gas charges and generate high trading margins. On the other hand, an increase in depreciation/interest costs would pressurise FY14 earnings.

- Significant capacity expansion unlikely before FY15: Earnings accretion through capacity expansion is unlikely before FY15 as (a) an additional jetty at Dahej may not be operational before Q4FY14 and (b) the expanded capacity at Dahej would be available only post Q4FY16.

- Maintain SELL; TP revised to Rs160: Rolling over to Sep'13 earnings, we revise our TP to Rs 160/sh but maintain our SELL rating due to (a) limited visibility on Kochi utilisation, (b) a likely pressure on earnings, and (c) decline in RoEs.

Source : Equity Bulls

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