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Published on 5/03/2018 12:53:24 PM | Source: Kotak Securities Ltd

Buy Petronet LNG Ltd For Target Rs.285.00 - Kotak Sec

* PLNG’s Q3FY18 result is lower than our expectation due to higher forex loss. The company has reported a PAT of Rs.5.3 bn up by 33% yoy but down 10% qoq, resulting in a quarterly EPS of Rs.3.53 and CEPS of Rs.4.2. In Q3FY18, PLNG has booked highest ever total volume throughput of 223 TBTUs, 1.4% qoq (Q2FY18 base volume was higher on gas imports driven by domestic coal shortages) and 17% yoy.

* Dahej RLNG terminal operated at 113% capacity utilization (expanded capacity of 15 mmtpa) in Q3FY18. Kochi RLNG terminal operated lower at 12% capacity utilization in Q3FY18 due to lack of pipeline connectivity vs 15.4% capacity utilization in Q2FY18. PLNG’s management expects Kochi-Mangalore pipeline to be completed by Q4FY19.

* Expansion Plans: PLNG is setting up a 2.6-2.7 million tonne (instead of initial 1 million tonne capacity) LNG FSRU terminal in Sri Lanka with an initial investment of US$ 300 mn. The LNG terminal will be set up on the western coast of Sri Lanka in close vicinity of Colombo where most of the power projects (operating mainly on costly liquid fuel) are located.

* Dahej capacity expansion is 70% completed, expansion from 15.0 mmtpa to 17.5 mtpa is expected by June 2019. The company has no plans to further expand it.

* The company has plans to venture into retail LNG business and in this regard it will test run LNG-fueled buses in Gujarat and Kerala.

* We have introduced FY20E earnings. PLNG has taken a 5% tariff hike for its Dahej terminal from 1st Jan’18. We expect PLNG to report an EPS of Rs.14 for FY18E, an EPS of Rs.15 for FY19E and an EPS of Rs.16.9 for FY20E. We expect FY19E to be better driven by acceleration in volume growth, supported by expansion. At CMP, we believe that the stock is attractively valued at 14.7x FY20E earnings. We recommend BUY rating on the stock with a price target of Rs.285/- including equity value of 26% stake in Dahej Port.

Valuation & Recommendation

We have introduced FY20E earnings. PLNG has taken a 5% tariff hike for its Dahej terminal from 1st Jan’18. We expect PLNG to report an EPS of Rs.14 for FY18E, an EPS of Rs.15 for FY19E and an EPS of Rs.16.9 for FY20E. We expect FY19E to be better driven by acceleration in volume growth, supported by expansion. At CMP, we believe that the stock is attractively valued at 14.7x FY20E earnings. We recommend BUY rating on the stock with a price target of Rs.285/- including equity value of 26% stake in Dahej Port.

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