Dahej utilization and margins drive strong earnings
* Petronet LNG (PLNG) reported standalone EBITDA/APAT of Rs13.6bn/Rs9.27bn in Q2FY21, up 17%/40% yoy (50%/78% qoq) and a 22%/34% beat, led by higher-thanexpected Dahej utilization, marketing margin and Other Income, and low Other Expense.
* The Dahej terminal operated at 109% capacity in Q2 (101% est). Long-term/spot/tolling volumes rose 32%/67%/35% qoq to 103tbtu/5tbtu/135tbtu. Kochi utilization was 17% (inline) with spot growing qoq. Total volumes rose 2% yoy/34% qoq to 254tbtu (8% beat).
* Implied spot LNG marketing margin was USD3.5/mmbtu (vs. USD1.1 est), though adjusted for IndAS 116 and inventory gain, it was USD0.6. EBITDA/mmbtu rose 16% yoy/12% qoq to Rs53.7 (13% above estimate). The board declared a special interim dividend of Rs8/sh.
* We raise FY21/22/23E EPS by 14%/2%/3%, building in higher volumes/margins and lower opex for FY21E and higher Other Income overall. We retain our DCF-based TP at Rs300. Retain Buy and turn OW in EAP. Management’s pessimistic tone on Tellurian is positive.
Other Expenditure was 21% lower than our estimate at Rs1.2bn (down 21% yoy, up 18% qoq), while Other Income of Rs1.6bn beat the estimate by 2x (up 64% yoy/133%qoq), due to forex gain of Rs770mn. Regas service income was Rs6.8bn in Q2FY21, while Gorgon volumes to Dahej stood at 7.5tbtu. IndAS 116 impact on depreciation/interest/PBT was (Rs870mn) /(Rs810mn)/Rs180mn.
The share of JV/associates turned positive at Rs98.5mn vs. a loss of Rs204mn in Q1FY21. Capex in H1 was Rs150mn with Rs1.05bn planned for H2. Guidance: H1FY21 opex was low due to delayed maintenance activities amid Covid-19. Demand has been healthy and would make up for the Q1 hit and 2-4% volume growth could be achieved this year.
The Kochi-Mangalore pipeline should be completed by Nov’20-end and the Kochi terminal should ramp up to 30-35% utilization by early FY22. Kochi-Bangalore is in process and would take 2-3 years to lay, post which utilization may touch 50-60%. It wants some capacity booking for Dahej 2.5mmtpa expansion. It is interested in spot-linked LNG contracts going ahead. Kochi tariff is still under discussion and a decision may come in 30-45 days.
There is no issue in Dahej tariff revision process. East-coast terminal has certain issues relating to demand assessment and pipeline connectivity. Urja Ganga should reach there and another pipeline is planned. There was no progress on Tellurian. LNG is now in abundance and PLNG does not see the need to invest in assets for now. LNG for transport is progressing well (signed an agreement with Gujarat Gas). The tender for infra is in final stages of evaluation and award. 5-8 stations will be set up shortly and 19 more through tie ups.
We value PLNG on a Sep’22E DCF basis. Key risks are adverse petroleum/gas prices, slowdown, competition, second Covid wave and capital misallocation.
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