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Research
Petronet LNG - In a Tight 'Spot'; Valuations attractive - Karvy
Posted On : 2013-07-04 21:18:37( TIMEZONE : IST )
Petronet LNG has been the primary beneficiary of KGD6 gas shortfall in last couple of years. However, optimal utilization of Dahej Terminal, delay in commissioning of Kochi terminal, and lower acceptability of RLNG in the new markets has resulted into under performance of the stock in last one year. Although we don't expect substantial ramp up in volumes we believe the recent correction in the stock has priced in all the negatives.
Kochi Terminal: Infrastructure Bottlenecks and fewer Buyers
Kochi terminal is expected to commission during 1HFY14, starting the supplies to Kochi Refinery and Fact India. However the offtake doesn't seem to increasing beyond 0.5 mtpa (capacity of 5 MTPA) in the near term. The pipelines to Kanjarkkod- Mangalore have been delaying as localities are still agitating against laying pipeline on their farmlands. Besides, the prospective users are yet to convert their facilities to gas based even though pipeline reaches their locations.
Tariffs and Margins to keep earnings Buoyant though
The margins on spot volumes and short term contracts are expected to be buoyant due to deficit in domestic market. The regas tariff of incremental volumes from Dahej and Kochi terminal are expected to offset for lower operating rates to a certain extent. The initial contracts of LNG from Kochi have been signed at Rs 62/mmbtu (Dahej Regas Tariff at Rs 38/mmbtu).
Dahej Debottlenecking to drive the earnings and avert dip in valuations; Valuation turn attractive
We don't expect ROEs to improve in next couple of years as Kochi terminal operates at lower rates. We expect it to take longer time to optimize in the new southern market. Currently the visibility of offtake from Kochi Terminal is not more than 1 MTPA in Phase 1 Pipeline. However, all these negatives seem to be priced in. We have accounted for Dahej ramp up in FY15. We expect margins and Regas Tariffs to stay buoyant. Our Valuation arrives at Rs 158/shr at EV/EBITDA 5X FY15E. We upgrade our rating to BUY.
