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Turnaround in throughput; full-year outlook intact

* Petronet LNG (PLNG) reported a beat on our estimates, led by higher-thanestimated throughput (Dahej back at >100% at 102%, after being subdued for the last three quarters, with Kochi utilization robust at ~24%).

* The company expects spot LNG prices to cool off post the winter season. Currently, huge demand is seen from China and Japan, with supply constraints resulting in a spike in spot LNG prices.

* Despite the immediate challenges, the management remains confident about achieving >900tbtu in volumes for FY22 (~96% utilization, i.e., flat YoY – supported by tied up contracts). Our numbers are in line with the aforementioned guidance, with the full-year volume assumption at 910tbtu. Company is also looking at extending its long term contract with RasGas beyond 2028.

* Dahej is expected to be expanded to 22.5mmtpa in two phases, while Kochi would see a ramp-up in utilization from newly connected consumers. Factoring in the same, we build in an EBITDA/PAT CAGR of 6–7% over FY21– 24E and maintain a Buy rating. PLNG announced interim dividend of INR7/share (translating to dividend yield of 3% at CMP).

* Lack of clarity on capital allocation remains the biggest risk to our call.

Beat led by better-than-estimated throughput

Total volumes were 9% above our estimate at 240tbtu (+15% QoQ), despite the spike in spot LNG prices during the quarter.

Utilization at Dahej recovered to 102% (225tbtu), after being subdued for the last three quarters.

Utilization at Kochi remains robust at 24% (15tbtu).

EBITDA delivered a beat of 22% on our estimate at INR13b (+23% QoQ).

* Net adjustments of INR653m (excluding GST) w.r.t. (use or pay charges) revenue booked earlier were recognized as an expense in 2QFY22, as the customer utilized volumes at the Kochi terminal.

* In addition, the management expects to recover the remaining INR1,330m from two customers.

* A lease accounting impact of INR1,470m and inventory gains of INR280m were recorded during the quarter

* PAT stood at INR8.2b (EPS of INR5.5 v/s our est. of INR4.7).

* 1HFY22 EBITDA stood at INR23.5b (+3% YoY), with PAT at INR14.6b (flat YoY). Utilization at Dahej stood at 95% (flat YoY), while that at Kochi was up to 24% (from 16% in 1HFY21).

Valuation and view – maintain Buy

* We remain positive on the gas story in India, which is set to clock a CAGR of 6–8%, as per our gas demand-supply model. This would be supported by the development of new CGDs and increased consumption at fertilizer and refining/petchem plants.

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

* Of the capex plans announced by the company, LNG retailing would be ramped up only in phases – ~5 LNG retail outlets are likely to be opened up on the highways of southern India currently (each outlet to cost INR80–100m). The East Coast terminal, with capex of INR15b, is still under evaluation.

* The stock trades at 10.7x FY23E EPS and 6.1x FY23E EV/EBITDA. We value PLNG on a DCF basis to arrive at a fair value of INR300. Maintain Buy.

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