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Subdued start to FY22; limited triggers ahead

PLNG’s adjusted EBITDA/PAT grew 16/22% YoY to Rs10.5bn/Rs6.36bn, below our estimates of Rs11.26bn/Rs6.8bn, with a miss on both volumes and margins. Volumes were 209tbtu (+10% YoY, -4% QoQ), well below our estimate of 220tbtu. Volumes at Dahej grew 7% YoY but declined 5% QoQ to 194tbtu (well below our estimate of 206tbtu), implying utilization of 87% in Q1; while regas volumes were 99tbtu (-1% YoY, +2% QoQ; CenE: 96tbtu), long-term volumes were 95tbtu (+17% YoY, -11% QoQ; CenE: 110tbtu).

EBITDA/mmbtu of Rs50.4 was up 5% YoY, but 1% below estimate due to lower trading margins. Strong headwinds for near-term volumes and negative surprise on capital allocation plans create uncertainties on medium-term prospects. Maintain ADD with a TP of Rs245. The stock trades at 11x FY23E EPS / 5x EV/EBITDA.

Volumes face near-term headwinds

PLNG reported overall volumes of 209tbtu (+10% YoY, -4% QoQ) vs our estimate of 220tbtu. Volumes at Dahej were up 7% YoY at 194tbtu, implying utilization of 87% in Q1, and below our estimate of 206tbtu. Volumes at Kochi were broadly in-line at 15tbtu (+67% YoY, +7% QoQ), implying 24% utilization in Q1. At Dahej, while long-term volumes were 95tbtu (+17% YoY, -11% QoQ; CenE: 110tbtu), regas volumes were 99tbtu (-1% YoY, +2% QoQ; CenE: 96tbtu). With spot LNG prices already at record levels, we believe FY22 will face further headwinds, with higher spot LNG prices, Covid-related shutdowns in Q1 and increase in supply of domestic gas from KG-D6 basin (10-12mmscmd additional output expected in FY22; further 20mmscmd over FY23-25E via RIL/ONGC).

Negative surprise on capital allocation plans

Though the company has guided Rs5.5bn/11-12bn capex for FY22/23E, the capex plans post FY23E are likely to jump significantly, with big capex plan of Rs150bn over the next 4-5 years. In a strategy reversal of sorts, management announced its intent to fully develop the LNG retail business on its own vs earlier intent to only partner with established fuel retailers (OMCs/CGDs) and make trading margins. This implies PLNG will likely invest Rs80bn on 1,000 stations to address a potential 3.5-4mtpa of additional volumes by FY25-26E. Also, PLNG is guiding Rs40bn investment in “BioGas” to sell to CGDs/OMCs at government-mandated price of Rs46/kg (UD$11/mmbtu) which is lucrative according to the management.

Attractive valuation; good prospects – maintain BUY

PLNG’s core business remains solid and profitable, with additional drivers via Dahej expansion and Kochi offtake pipeline commissioning over the next 12-18 months. However, the very aggressive capex plans make us nervous about medium-term financial metrics, with growing domestic supply and competing terminals also a drag on nearterm demand. We see limited growth triggers in near term, with the Q1 miss and higher capex driving a 2.5/3% lower FY22/23E EPS. For the longer term, higher capex and back dated returns from the same drag down DCF valuation to Rs245/share, 14% upside. ADD.

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