Structural play on increasing gas demand...
Petronet LNG reported its Q1FY21 results that were better than our estimates on the volumes and profitability front. Volumes fell 15.9% YoY and 13.2% QoQ to 190 tbtu (I-direct estimate: 177 tbtu) as LNG offtake was reduced during lockdown. Revenues were down 43% QoQ to | 4883.6 crore (I-direct estimate: | 6411.8 crore). Blended margins were at | 55.1/mmbtu, above estimate of | 50.7/mmbtu. EBITDA was up 30.5% QoQ to | 909.9 crore vs. our estimate of | 753.3 crore. Consequently, PAT was at | 520.2 crore, up 44.9% QoQ (I-direct estimate: | 394.4 crore).
Dahej utilisation back to full capacity
Petronet LNG’s total volumes were above our estimates, mainly due to higher regasification sales. Total sales volumes were at 190 tbtu vs. 226 tbtu in Q1FY20 (down 15.9% YoY) and 219 tbtu in Q4FY20 (down 13.2% QoQ). Sales volume was at 90 tbtu during the quarter. Capacity utilisation at the Dahej terminal was at ~81% while overall capacity utilisation was at ~62%. Post the lockdown period, Dahej utilisation picked up in June and is currently at 104%. Subsequently, we estimate 910.4 tbtu, 975.8 tbtu for FY21E, FY22E, respectively. In terms of margins, we estimate blended margins at | 55.4/mmbtu and | 57.8/mmbtu in FY21E and FY22E, respectively, assuming 5% increase in Dahej regas charges and Kochi tariffs annually.
Kochi utilisation to improve on new pipeline commissioning
Petronet’s Kochi terminal is expected to see an increase in utilisation post completion of the Kochi-Mangalore pipeline. The pipeline is expected to be commissioned by August end. This will help increase utilisation, going ahead. We expect capacity utilisation to improve to 30-35% in FY22E. With regard to 17.5 mmtpa Dahej terminal, 7.5 mmtpa capacity has been booked under RasGas long term volumes while additional 8.25 mmtpa has been booked as regasification capacity, thus providing visibility to long term volumes.
Valuation & Outlook
Petronet LNG provides comfort on the business model and remains a structural story on India’s increasing gas demand. With India continuing to be short of natural gas supply, Petronet LNG will benefit as the primary play on increasing usage of LNG. While volumes were impacted during the lockdown, currently Dahej terminal is operating at full capacity. On the new project front, the management indicated the company is planning to set up an import terminal on the east coast. Also, Petronet’s deal with Tellurian to buy a stake and import LNG is under negotiation. At the CMP, Petronet LNG trades at an attractive 5% dividend yield. We except healthy dividend payout in future as well. We maintain BUY recommendation on the stock. We value Petronet LNG at 15x FY22E EPS of | 20 to arrive at a target price of | 300.
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