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Weaker demand sentiment impacts utilization   

Our view

PLNG’s 2QFY23 reported operating profit at Rs 11.7bn (?10% YoY; +10% QoQ) stood ahead of our and street estimates, primarily on higher gas trading gains. PLNG reported a gas trading gain of Rs 2730mn (1Q: Rs 1030mn), stemming from operational efficiency, as it shifted its energy consumption to grid power, from expensive LNG, which in?turn was traded. However, depreciation in INR also resulted in 980mn of forex losses, related to lease liabilities. The terminal utilization & throughput deteriorated during the quarter on account of weaker LNG import in the country as LNG price environment firmed up and supply from Gazprom contract got shunted. We believe that there are headwinds in the near term viz a) high LNG prices weighing on demand, b) commissioning of RIL’s MJ field by end of Dec’22, which could substitute LNG import, but  in the longer run we believe, India’s dependence on LNG is only going to increase. In addition, PLNG is investing in brownfield and greenfield projects to cement its position in the LNG import market. Maintain BUY.  

Result Highlights

* Profitability: Ebitda and PAT during the quarter, stood at Rs 11.7bn (?10% YoY; +10 QoQ) and Rs 7.4bn (?10% YoY; +6% QoQ), above estimates on higher trading gains. PLNG was able to introduce operationalefficiency and reduce its dependence on LNG as fuel, by switching to grid power, and the LNG instead was used for trading.  

* LNG throughput: The total throughput however stood lower than our expectations at 192 mmbtu (?20% YoY &  ?8% QoQ). Weaker throughput stemmed primarily from muted demand and limited supply in light of high global LNG prices. The domestic LNG import in the country also stood lower by 13% YoY at 5.5mmt during the quarter

* Dahej Terminal: Dahej throughput for the quarter stood at 182tbtu (1Q: 196tbtu), implying a utilization of 82% (1Q: 88%). The cargo mix included 103tbtu of LT (1Q: 101tbtu), 2.0tbtu of ST (1Q: 1tbtu) and 77tbtu (1Q:94tbtu) of Service cargo. The LT cargo also included 8.7tbtu of Gorgon LNG cargo meant for Kochi Terminal, diverted to Dahej. The current tariff rate at Dahej terminal stands at Rs 57/mmbtu and the implied tariff for service cargoes at Rs 56.9/mmbtu (1Q: Rs 57.1/mmbtu).

* Kochi Terminal: Kochi throughput for the quarter stood at 10tbtu (1Q: 12tbtu), implying a utilization of 16% for the quarter. The cargo mix included only 10tbtu (1Q:12tbtu) of LT cargo. The tariff at Kochi terminal stood at Rs 81.03/mmbtu.   

*Capex: PLNG has implemented a capex plan of Rs 35bn, towards capacity augmentation at Dahej terminal to 22.5mmt (from 17.5mmt). The plan envisages construction of two storage tanks, a third jetty and de?bottlenecking of the terminal. The construction of tanks is ~ 38?39% complete. In addition, PLNG’s board has given approval for construction of an FSRU based terminal at Gopalpur at the cost of Rs 23bn. PLNG is also actively considering an investment in a Polypropylene plant, however the capex for the same is yet to finalized.

Valuation

We value PLNG at Mar 24 TP of Rs 320/sh on DCF basis, implying a target PE multiple of 15.4x FY25e, vs 10.3x the stock is trading at. The current trading multiple is one standard deviation below PLNG’s mean trading multiple, which is closer to our target multiple. 

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