Petronet LNG - Multiple headwinds ahead - ICICI Securities

Petronet LNG's (PLNG) Q3 and 9MFY21 standalone and consolidated EPS was up 30-18% YoY, driven by rise in Dahej regas charge and inventory gains. We have raised FY21E EPS by 7% to factor-in Q3 surprise. Dahej volume in Q3 was down 9% QoQ. Spot LNG surge led to Dahej utilisation fall in Jan'21. Rise in domestic gas output to 25-45mmscmd by end-FY22-FY24E & LNG import capacity in Gujarat by over 12mmtpa by end-FY23 may hit Dahej utilisation. We have cut Dahej regas volumes for FY21-FY23E & assume utilisation at 100-90% in FY22-FY24E. This leads to cut in FY22E EPS by 8% & DCF-based target price by 2% to Rs252/share (4% upside). Cut in Kochi terminal regas charge is another risk, which may mean 9% downside to fair value. Retain HOLD until more clarity on key issues.

- Q3 EPS up 30%: Q3FY21 standalone EPS was up 30% YoY driven by 15% YoY rise in Dahej regas charge boosted by inventory gain of Rs600mn & trading gain of Rs540mn on spot volumes. Dahej volumes were flat YoY, but down 9% QoQ. Kochi volumes were up 18% YoY on a low base. Q3 consolidated EPS was up 30% YoY; profit share of investee was up 3.7x to Rs150mn. 9M standalone & consolidated EPS is up 18% YoY as regas charge rise more than made up for volume fall.

- Takeaways from earnings call: 1) Spot LNG surge led to fall in tolling volumes, which hit Dahej utilisation in Jan'21 but with spot LNG correcting volumes are recovering; 2) tolling volumes were 0.7mmt higher than booked capacity in 9M, which may mean no use/pay despite fall in volumes in Jan'21; 3) Kochi utilisation is likely to rise to ~30% by mid-FY22E as volumes on Kochi-Mangalore pipeline ramp up & may rise to 60-70% once pipeline to Bengaluru, on which work has begun, is commissioned by FY24E; 4) Dahej capacity would rise to 20mmt in three years after two additional storage tanks are added at the cost of Rs1.25bn, and 5) capex was just Rs650mn in 9M vs Rs3.5bn planned for FY21 and would be Rs5.3bn in FY22E.

- Dahej utilisation at 100-90% in FY22-FY24E; Kochi regas charge, if cut, to hit EPS and FV: Domestic gas output is set to rise by 25mmscmd by end-FY22E, 40mmscmd by end-FY23E and 45mmscmd by end-FY24E given start of gas output from R cluster field in KG-D6 in Dec'20, satellite and MJ1 fields in KG-D6 in CY21-CY22E and another KG-D6 deepwater block in CY21E. Commissioning of Swan & Chhara terminals and debottlenecking of pipelines to boost Mundra terminal would boost LNG import capacity in Gujarat by over 12mmtpa in FY23E. Three players, who have booked capacity on Dahej terminal, have also booked 4.5mmtpa capacity on Swan terminal. LNG imports by these players at Dahej were 0.8-0.7mmt (10-9%) higher than booked capacity in FY20-9MFY21. Once Swan terminal starts in Mar'22, imports at Dahej are unlikely to exceed booked capacity. We therefore estimate Dahej volume fall to 17.5-15.75mmt implying 100-90% utilisation in FY22-24E. Kochi regas charge is 38-61% higher than at recently commissioned Ennore and Mundra terminals. Cut in Kochi regas charge to Rs60.25/mmbtu (same as Ennore) would 0lead to cut in FY21E-FY22E EPS by 2% and fair value by 9% to Rs230.

Shares of PETRONET LNG LTD. was last trading in BSE at Rs.240.5 as compared to the previous close of Rs. 242.1. The total number of shares traded during the day was 128593 in over 1915 trades.

The stock hit an intraday high of Rs. 245.8 and intraday low of 239.25. The net turnover during the day was Rs. 30999491.

Source : Equity Bulls

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