Petronet LNG Ltd.- Q2FY14 Update - CMP Rs.130, Rating Changed to Hold, Revised Target of Rs.145 - Sushil Finance

Petronet LNG Ltd. (PLL) has reported disappointing set of numbers for the quarter ended Sept'13 wherein PAT de-grew by ~42% YoY to Rs.1818 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 Q2 & H1FY14 results

- Declining volumes coupled with capitalization of Kochi terminal led to sharp drop in net profits which declined by ~42% YoY to Rs.1818 mn. Volumes declined by ~8% YoY (~5% QoQ) to 123 tbtu's mainly due to lower spot volumes which were down by more than 50% YoY to 12 tbtu's resulting in lower utilization (~97%) at Dahej. Lack of demand at higher LNG prices ($15-16/mmbtu) remains a concern for spot volumes. In H1FY14, volumes were down by mere 3% to 252 tbtu's.

- Capitalization of Kochi terminal in Sept'13 (since 10th Sept'13) had a strong impact on profitability with depreciation & interest increasing by 28% & 22% YoY to Rs.596 mn & Rs.386 mn resp. In addition to it, marketing margins were also comparatively lower at ~$0.14/mmbtu, thus impacting the margins wherein OPM & NPM declined by ~310 bps & 230 bps to 3.8% & 1.9% resp. With negligible volumes & higher depreciation & interest cost, Kochi reported PBT loss of Rs.320 mn.

- Despite Kochi getting operational, connectivity of Kochi-Mangalore-Bangalore pipeline still remains an issue. Management expects atleast 1-year for phase-I completion whereas there is no visibility on phase-II completion. On back of connectivity issues, utilizations at Kochi is likely to remain low below 10% over the next 12-15 months.

- Considering the demand slowdown at higher LNG prices, lack of visibility on connectivity issues coupled with prolonged under-utilization of Kochi terminal, we have downward revised our earnings estimate for FY14E & FY15E by 19% & 17% to Rs.9.6 & Rs.10.3 respectively.

- Second jetty at Dahej is likely to get operational in Q1FY15, thus providing some hope for better utilization levels at Dahej, since ~1.25 MT is allotted to GSPC under tolling arrangements. Also, quicker than expected completion of phase-I connectivity resulting in better utilizations at Kochi coupled with easing of international LNG prices provides upside risk to our earnings estimates.

OUTLOOK & VALUATION

Declining spot volumes, under-utilization of Kochi terminal coupled with lower marketing margins has led to disappointing set of numbers for the current quarter. Connectivity at Kochi remains the major concern in the near term offering limited room for upside from current levels. However, we remain positive on the long term growth prospects of the Company taking into account its leadership position, strong execution track record & the dynamics of the industry in which it is operating. Considering the Kochi overhang, we expect stock to underperform in near term & hence recommend 'HOLD' with a revised price target of Rs.145.

Source : Equity Bulls

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