Petronet LNG - Terminal eligibility norms - not a cause for concern - Prabhudas Lilladher

- Regulatory concerns unwarranted: MOPNG has notified rules for registration of LNG terminals whereby common carrier capacity to the tune of 20% of short term re-gas volumes (short term volumes being volumes with less than 5 years of supplies) or 0.5MMTPA, whichever is higher is mandatory for new/ operating terminals. We believe the impact on Petronet is limited owing to already existing tolling volumes (~1.4MMTPA/~40% of short term volumes in FY12) at its Dahej terminal.

The notification also states PNGRB is mandated to protect consumer interest as well as foster fair trade and competition among LNG terminal operators, raising concerns among a section of investors over potential regulatory risks. However, we believe concerns on potential regulation of re-gasification tariffs by PNGRB are unwarranted as the government is likely to take a pragmatic view in a scenario which demands incentivizing LNG capacity build out.

- Outlook: PLNG's utility nature of business (stable re-gasification margins and term contracts), low regulatory risks and expanding volumes on account of strong demand estimates, hold it in good stead. We believe the recent correction of ~8% from its recent highs provides a good opportunity to enter the stock. Going forward, stock price appreciation would be driven by potential positive developments at Kochi terminal (increased linkages at affordable prices) along with timely execution of Phase 2 pipeline (Kochi - Bangalore & Kochi - Mangalore). We maintain 'Accumulate' on our DCF based target price of Rs179/share (upside of 12.6%).

Source : Equity Bulls

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