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Published on 10/08/2018 3:28:00 PM | Source: Emkay Global Financial Services Ltd

Buy Petronet LNG Ltd For Target Rs.305.00 - Emkay

Earnings beat on strong margins, volume steady; Maintain BUY

*  Petronet LNG (PLNG) reported a PAT of Rs5.87bn for Q1FY19, up 34% yoy (+12% qoq) and 3% above our estimate. EBITDA stood at Rs9.34bn, up 24% yoy (+14% qoq) and was 8% above our estimate. Other income was lower than our expectation.

*  The EBITDA beat was led by better margins that were aided by lower internal consumption in summer months, efficiency gains from higher volume, 5% Kochi regas tariff hike and lower other expenses. EBITDA/mmbtu rose by 10% qoq (8% yoy) to Rs42.4.

*  Volume remained largely in line with our estimate at 4.3mmt, up 4% qoq. Dahej operated at 112% capacity, with third party tolling volume up 15% qoq. Kochi capacity utilisation stood at 10%.

Q1FY19 performance:

Dahej volume was up 3% qoq at 214tbtu with 11tbtu coming from Gorgon. While the tolling volume increased, spot volume and long-term volume declined by 2-3tbtu qoq each. In Kochi, volume was up marginally, although FACT was not there. Regas service income was up 16% qoq at Rs4.4bn while Rs130-140mn came from Kochi storage/reloading. Our computed marketing margin on spot volume was significantly high at US$1.7/mmbtu v/s NIL in Q4FY18, although this was distorted by internal consumption gains. Other expenditure was up 9% yoy but fell by 11% qoq to Rs1.28bn with no oneoffs. Other income of Rs990mn was 14% below our estimate while the tax rate was 35% v/s our estimate of 33%. Depreciation was largely flat. Cash/debt stood at Rs50/11.8bn.

Management guidance:

PLNG management hinted the 2.5mmtpa Rs3.9bn expansion at Dahej could be ready by March’19 while Kochi may see some delay in actual ramp-up (0.75-1mmtpa Mangalore volume delta). However, the schedule for the commercialisation of Mangalore pipeline remains unchanged i.e. Dec’18. Implementation and terminal service agreement for the Bangladesh terminal will soon be submitted, post which negotiations will start with government. Meanwhile, Sri Lanka is going slow with Pre-FEED activities currently underway. LNG for CVs is under progress although more clarity will emerge in the ensuing quarters. PLNG has bid for 7 GAs under the 9th Round CGD bidding and has indicated a cumulative capex of Rs60bn+ on 1mmtpa volume potential if it wins all. The company is not worried about competition from Mundra and Jaigarh as it has tied up 100%+ capacity and has the lowest regas charge. However, LNG prices may remain buoyant due to China demand.

Outlook and valuation:

We remain positive on PLNG and based on Q1FY19 run-rate, we have raised our FY19 EPS estimate by 3%. While we have revised Kochi terminal ramp-up timeline to 2HFY20 (v/s 1HFY20 earlier), our earnings for FY20 remain unchanged, as Dahej expansion can cover Gorgon besides aiding overall volume growth. We maintain our DCF-based Target Price (TP) of Rs305. Maintain BUY. 

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