Petronet LNG - Another strong quarter, but valuations demanding - ICICI Securities

Petronet LNG's (PLNG) Q2FY13 numbers are above our expectations led by higher-than-expected gross margins at Rs44/mmbtu (up 7% QoQ adjusting for forex gains). The high margins were triggered by surge in spot volumes (up 34% QoQ), whose margins contributed ~24% to Q2FY13 EBITDA. Volumes were in line with our estimate at 135tbtu (up 6% QoQ), as decline in spot LNG prices triggered demand (as reflected in expansion of spot and regas services volumes). Volumes have now normalised for PLNG, and we expect the company to clock ~106% utilisation in FY13.

We expect PLNG to maintain high levels of utilisation over the next few quarters, as domestic gas production continues to decline. Risk from regulation of marketing margin has subsided, as the recent judgment by the Delhi High Court has underscored that the PNGRB lacks the authority to control enduser prices. However, marketing margin could come under pressure in the longer term, as competing LNG capacities get commissioned.

We raise DCF value for PLNG to Rs180/share (from Rs168), as we roll forward our DCF to FY14. The stock offers long-term triggers from its aggressive expansion plans, though lower volumes from Kochi initially would be a drag on the profitability. The company's renewed interest in setting up power plants at Kochi and Dahej again raises concerns. The stock is a good long-term pick on sharp corrections. Maintain ADD.

Source : Equity Bulls

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