Petronet LNG - Spot plays spoilsport - Centrum

Petronet reported disappointing set of numbers impacted by lower tolling volumes and re-gasification margins on spot LNG. Thus, Q4 PAT stood at Rs2.5bn, lower by 23.0% sequentially and 14.6% lower than our expectations. Overall re-gasification volumes declined by 13.2% QoQ and 9.3% YoY at 122.0TBTUs. Lower margins on spot volumes led to 12.3% QoQ decline in blended re-gasification tariffs at Rs38.3/mmbtu which includes some income from a take-or-pay contract. Management guided that the delayed commissioning of Kochi terminal will now be in July 2013. This was due to delay in commissioning of consumer facilities and ongoing plant modifications at Petronet's Kochi terminal. During the first year of operations Kochi's utilisation is expected to be about 10% which will move up post commissioning of the long distance pipeline network. However, Kochi's initial tariff is expected (as per the management) at Rs62.0/mmbtu (much higher than Dahej's Rs36.8/mmbtu and our earlier expectation of Rs50/mmbtu) with 5% YoY escalation clause. We believe Petronet's valuations look attractive at the current juncture with the commissioning of Kochi terminal the near term trigger. Maintain 'Buy'.

- Revenues buoyed by higher long-term and spot LNG prices: Higher spot LNG prices (about US$19-20/mmbtu) coupled with rising long-term LNG prices and rupee depreciation led to 32.8% YoY surge in revenues at Rs84.7bn. Sequentially though, revenue remained flattish.

- Lower tolling volumes and decline in spot re-gasification margins: Higher spot LNG prices at about US$19-20/mmbtu coupled with tight availability in global markets impacted Petronet's tolling volumes which declined QoQ from 13.5TBTUs to 3.7TBTUs thus impacting tolling income yet it received some income from a take-or-pay contract. Petronet's spot volumes declined QoQ from 30.6TBTUs to 24.4TBTUs with overall volumes declining QoQ from 140.6TBTUs to 122.0TBTUs. Our reverse calculation suggests that spot regasification margins declined by about 13% QoQ from Rs73/mmbtu to Rs63/mmbtu. Blended re-gasification margins thus stood at Rs38.3/mmbtu declining by 12.3% QoQ.

- Lower volumes coupled with lower margins impact profitability: 13.2% QoQ decline in volumes coupled with 12.3% QoQ drop in blended re-gasification tariffs led to 23.0% decline in PAT at Rs2.5bn from Rs3.2bn in Q3.

- Kochi initial tariff expected at Rs62/mmbtu: Management has guided Kochi's initial tariff at Rs62/mmbtu (with annual escalation of 5%) which is higher than our assumption of Rs50/mmbtu which has raised our DCF based target price. Also, Kochi terminal is expected to be commissioned in July due to the delay in commissioning of consumer facilities and ongoing plant modifications at Petronet Kochi terminal. Spot availability pressure in early Q4 has now subsided and prices have cooled off to about US$14-15/mmbtu which suggests higher re-gasification volumes in Q1FY14E. Progress on all the other projects including Dahej second jetty along with capacity expansion and Gangavaram terminal are as per expectations. We have changed our estimates based on indicative re-gasification margin for Kochi, delayed commissioning of Kochi facility (thus affecting depreciation and interest for FY14E) and higher long term LNG prices. Our DCF based target price has moved up to Rs213 from Rs190 earlier, primarily on account of higher re-gasification tariffs for Kochi. We remain positive on Petronet with Kochi commissioning the near term catalyst and maintain 'Buy' on the stock.

Source : Equity Bulls

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