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Operational fundamentals remain unchanged; capex high on aspirations

* PLNG numbers were largely in line with our estimate, with volumes (at 218Tbtu) and utilization rates (Dahej/Kochi at 92%/22%) flat YoY in 4QFY21.

* The second COVID wave and higher spot LNG prices have proved to be a double whammy for the company, with spot cargoes being deferred due to lower consumption. Dahej/Kochi is operating at a utilization rate of ~88%/~22% in 1QFY22 till date.

* The management expects Kochi utilization rate to ramp up by ~30% by the end of FY22 (earlier guidance of ~40%), while Dahej would continue to operate at over 95% owing to tied up contracts (16.5mmtpa of 17.5mmtpa).

* Factoring in the aforementioned, we lower our FY22E EPS by 8%, while keeping our FY23E EPS unchanged. PLNG has raised tariffs by 5% at both Dahej and Kochi terminals (now at INR54.3/INR83.1 per mmbtu). Kochi tariff negotiations are still ongoing and tariffs may be reduced if commitment for commensurate offtake is provided by consumers.

* Capex guidance for FY22/FY23 stands at INR5.3b/INR10b, with committed capex of INR41b over the next 3-4 years. This committed capex is for the already announced plans at Dahej to set up two additional tanks (capex of INR13b), an additional jetty (INR17b), and capacity expansion by 5mmtpa (INR11b) to 22.5mmtpa.

* Apart from this, the management also spoke about various prospective capex plans, which are currently under evaluation like setting up of 1,000 LCNG stations (INR80b), a biogas plant (INR40b), an additional tank in Kochi (INR7b), and an LNG terminal on the east coast (INR16b).

* Of the aforementioned prospective capex, the latter would still be possible in the near term. Both biogas and LNG retailing appear aspirational towards India’s larger vision of a greener economy.

In line numbers for 4QFY21

* EBITDA came in line with our estimate at INR10.9b (+56% YoY – due to higher opex in 4QFY20). Other expense includes INR180m/INR560m on account of Ind AS losses/CSR provision, while trading loss stood at INR40m. PAT stood at INR6.2b (16% lower than our estimate due to lower other income).

* Total volumes stood at 218Tbtu (flat YoY, -7% QoQ).

* Dahej volumes stood at 204Tbtu, with the utilization rate at 92% (flat YoY).

* Kochi volumes stood at 14Tbtu, with the utilization rate at 22% (flat YoY).

* Volumes were down a mere 3% at 897Tbtu in FY21, despite the impact from COVID-19. Utilization in Dahej/Kochi stood at 96%/19% (v/s 104%/17% in FY20). EBITDA rose 18% YoY to INR47b due to one-offs (inventory and trading gains). PAT rose 9% YoY to INR29.5b.

* The company announced a final dividend of INR3.5/share (in addition to an interim dividend of INR8) – totaling INR11.5/share. This translates to a dividend payout of ~60% and a dividend yield of 5% for FY21. We expect the dividend payout to be in the current range (~60%) going forward.

Valuation and view

* Gas consumption in India is expected to rise by 8-10% CAGR over the next five years as gas availability increases. Upcoming pipelines like Jagdishpur-Haldia, North East grid, and Mehsana-Bhatinda pipeline will connect more consumers, thereby supporting consumption. We are positive on the company as the market share of gas in the primary energy mix is a meager 6% and is expected to double by CY30 (primarily from development of new CGDs and increased consumption by Fertilizer and refining/petchem plants).

* Upcoming LNG terminals like that of H-Energy and Swan, or even incremental domestic gas, is not expected to impact Dahej utilization as most of its capacity is tied up for the long term. Dahej remains the cheapest import terminal in India, with a tariff of ~INR54/mmBtu. Its capacity is expanding to 22.5mmtpa over the next 3-4 years, assuaging long-term growth concerns.

* Currently, ~0.8mmsmcd of additional gas (~0.4mmscmd each by MCFL/OMPL) is flowing from the Kochi terminal. MRPL’s peak volume offtake could be ~2mmscmd. The management expects the Kochi terminal to achieve utilization of ~30%/~50% in FY22/over the next two years, with the completion of KochiBengaluru pipeline (9-11 CGDs and as other industrial units get connected).

* The aforementioned calculation for volume growth would translate to 7-9% EBITDA/PAT CAGR over FY21-23E. The stock trades at 9.8x FY23E EPS of INR23.4 and 5.6x FY23E EV/EBITDA. We value PLNG on a DCF basis to arrive at a fair value of INR310. Reiterate Buy.

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