Petronet LNG - Q1FY14 Result Update - Sushil Finance

Petronet LNG Ltd. (PLL) has reported disappointing set of numbers for the quarter ended June'13 wherein PAT de-grew by ~17% YoY to Rs.2253 mn. We attended the conference call of the company and following are the key highlights of the results which are summarized below:

Key Highlights of Q1FY14 results

- Lower spot volumes coupled with declining marketing margins led to 17% YoY decline in net profits to Rs.2253 mn. Higher tolling volumes by off-takers led to drop in spot cargoes wherein volumes stood at 19 tbtu's v/s 21 tbtu's in Q1FY13 & 24 tbtu's in Q4FY13. Also lack of demand for LNG at higher prices led to sharp drop in marketing margins. Overall volumes were flat YoY whereas improved marginally by 5% on sequential basis to 129 tbtu's (LT 92; Spot 19; Tolling 18 tbtu's).

- Operating & Net profits declined by ~13% & 17% YoY while margins dipped by 180 bps & 120 bps to 4.7% & 2.7% respectively. Margin pressure was majorly on account of higher LNG prices, lower marketing margins & higher internal consumption at Dahej. We expect margins to remain under pressure post capitalization of Kochi terminal, since facility is likely to operate at lower levels (~10-20%) in FY14-15E.

- Kochi terminal is expected to get commissioned in August'13. Initial volumes to be lower at ~0.5-0.6 MTPA on back of pipeline connectivity issues. FACT & BPCL's Kochi refinery are the key customers for Phase-I pipeline. Management expects part of Phase II pipeline connecting Kochi - Mangalore to get commissioned over the next 1 year whereas uncertainty over Kochi - Bangalore persist on back of ongoing land issues in Tamil Nadu.

- Second jetty at Dahej is likely to get operational by April'14, thus improving the utilization of the terminal. Also, the Company has achieved the financial closure for its Phase II expansion at Dahej from 10 MTPA to 15 MTPA & is likely to award the contracts for regas & storage facilities over the next few months.

- Considering the increasing pressure on marketing margins with higher LNG prices, we have on conservative basis lowered down our marketing margin assumptions from 25 cents for Dahej & Kochi terminal to 15 cents & nil respectively from FY14 onwards, thus impacting the future profitability resulting in lower earnings (FY14E & FY15E EPS revised downwards by ~9% & 14% resp.).

OUTLOOK & VALUATION

Considering the project delays, under-utilization of Kochi terminal (resulting in high interest & depreciation), & mounting margin pressure we expect earnings to take a hit over the next 2 years. However, stable domestic gas demand coupled with huge ongoing capex plans provides volume visibility over the long term. Also faster ramp-up of Kochi terminal & better than expected marketing margins offers upside risk to our assumptions. Hence, considering the sound business model, volume growth visibility over the long term coupled with healthy financials, we maintain our positive outlook on the stock & recommend 'BUY' with a revised price target of Rs.156 based on DCF methodology.

Source : Equity Bulls

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