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Volumes dip but outlook remains intact

* Petronet LNG (PLNG) reported a beat on our EBITDA despite lower volumes due to trading gains of INR2.7b during the quarter.

* Dahej utilization stood at 82% while utilization at Kochi was at 16%, hurt by lower off-take amidst high LNG price.

* Spot LNG price has come down to ~USD25/mmBtu and is expected to soften further in 4QFY23, which should lead to improvement in utilization rates during 2HFY23. Utilizations are likely to remain muted in the near term, although take-or-pay revenue may originate during 3QFY23.

* The Board hasrecently approved a budget of INR23b for the 4mmtpa FSRU project in Gopalpur. The project aims to establish PLNG’s presence in the eastern coast of India by addressing the increasing gas demand in the region. * Lack of clarity on capital allocation and possible returns from the new investments such as biogas projects and PDH-PP continue to remain key concerns that might keep the stock under pressure.

* Factoring in the above, we revised our Revenue/EBITDA estimates in FY24 by -12%/-20%, respectively, reflecting low volume off-take expectations in FY24 led by increased competition. Reiterate BUY due to healthy long-term volume trajectory of the company.

Beat on EBITDA; volumes disappoint

* PLNG’s total volumes were 8% below our estimates at 192TBtu (down 20% YoY and 8% QoQ) in 2QFY23.

* Dahej utilization was at 82% (182TBtu) during the quarter.

* Kochi utilization was at 16% (12TBtu) during the quarter.

* EBITDA delivered a 12% beat on our estimate at INR11.7b (down 10% YoY, up 10% QoQ), with PAT at INR7.4b (13% above estimate, down 10% YoY, up 6% QoQ) in 2QFY23.

* For 1HFY23, EBITDA stood at INR22.4b (down 5% YoY), with PAT at INR14.5b (down 1% YoY).

* Dahej utilization stood at 85% (down 9% YoY), while Kochi utilization stood at 17% (down 6% YoY) in 1HFY23.

* The company has declared an interim dividend of INR7 during the quarter.

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, led by: a) development of new CGDs and b) higher consumption at fertilizer and refining/petchem plants.

* Total capex guidance for FY23-24 is at INR42.5b. The company would set up a petrochemical project wherein it would produce PDH-PP (capacity of 500ktpa) and another product as already guided. It is also setting up two new tanks at Dahej at a capex of INR12.5b by CY24E. About 39% of the project has been completed.

* A third jetty is coming up at Dahej with a capex of INR17b. FSRU on the East coast may cost the company INR15b along with a brownfield expansion of 5mmtpa at the Dahej terminal at a cost of INR6b (to be completed in phases by CY24E or early CY25E).

* The stock trades at 5.4x FY24E EV/EBITDA. We value PLNG on a DCF basis to arrive at a fair value of INR297; maintain BUY.

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