Petronet LNG - Rating: HOLD; Target Price: Rs110 - Centrum

During the quarter, we expect weak demand for RNLG and hence expect the company to report capacity utilization of 96% at Dahej terminal vs. 110%/96% in Q3FY13 / Q2FY14 respectively. We do not expect uptick in spot/tolling cargoes during this quarter and as in Q2FY14 the company is unlikely to invoke take-or-pay charges.

We do not expect recovery in trading/marketing margins and built-in earnings thereon of USD0.08/MMBTU vs average USD0.05/MMBTU in H1FY14 and USD0.48/MMBTU in Q3FY13.

We expect Kochi terminal to operate at 8% capacity utilisation. Ramp-up is unlikely until Kochi – Mangalore – Bangalore pipeline is commissioned. Due to protracted litigation by Tamil Nadu State over the laying of pipelines by GAIL, uncertainty prevails over phase-2's implementation.

Earnings revised downwards: We are downgrading our revenue/PAT marginally in FY15E on the back of changes in our capacity utilization estimates, revision in trading/marketing margins and incorporating 5% annual escalation in regas charges for Dahej terminal. We maintain our target price of Rs110 but upgrade our rating to HOLD after stock price correction.

Source : Equity Bulls

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