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Improvement in utilization offset by forex loss

Our view

PLNG’s 1QFY23 reported operating profit at Rs 10.6bn (+1% YoY; -16% QoQ), stood below our estimates and street estimates primarily on a) Rs 1240 mn booked as notional forex loss on depreciation in INR and b) lower gas trading volume of 1 tbtu, the same was partially offset by higher other income and higher than estimated gas trading margin of USD 3.2/mmbtu (YES est), while total LNG throughput stood in-line. The terminal utilization & throughput improved during the quarter on 9% QoQ higher LNG import and seasonal closure of competing Dabhol terminal. While there are headwinds in the near term viz a) high LNG prices weighing on demand, b) commissioning of RIL’s MJ field in 3QFY23, leading to disruption in LNG import, but in the longer run we believe, India’s dependence on LNG is only going to increase and therefore maintain our BUY rating on PLNG with a revised TP of Rs 330/sh.

Result Highlights

 Profitability: Ebitda and PAT during the quarter, stood at Rs 10.6bn (+1% YoY; - 16% QoQ) and Rs 7.0bn (+10% YoY; -15% QoQ), below our and street estimates on account of forex losses of Rs 1240mn, which was partially offset by higher than estimated other income of Rs 1.4bn.

* LNG throughput: The total throughput stood at 208tbtu (4Q: 190tbtu) flat YoY but higher by 9% QoQ, primarily on diversion of Re-Gas service cargoes to Dahej, due to seasonal closure of Dabhol terminal. The domestic LNG import in the country stood lower by 10% YoY but 9% higher QoQ at 5.6mmt during the quarter. For the quarter the cargo mix included 113tbtu (4QFY22: 109) of Long Term and 1tbtu (4QFY22: 3tbtu) of short-term trading cargo while 94tbtu (4QFY22: 78) was re-gas service cargo, across Dahej and Kochi terminals

Dahej Terminal: Dahej throughput for the quarter stood at 196tbtu (4Q: 178tbtu), implying a utilization of 88% (4Q: 80%). The cargo mix included 101tbtu of LT (4Q: 97tbtu), 1tbtu of ST (4Q: 3tbtu) and 94tbtu (4Q:78tbtu) of Service cargo. The LT cargo also included 5.2tbtu of Gorgon LNG cargo meant for Kochi Terminal, being diverted to Dahej. The current tariff rate at Dahej terminal stands at Rs 57/mmbtu and the implied tariff for service cargoes at Rs 57/mmbtu (4Q: Rs 49/mmbtu).

 Kochi Terminal: Kochi throughput for the quarter stood at 12tbtu (4Q: 12tbtu), implying a utilization of 19% for the quarter. The cargo mix included only 12tbtu (4Q:12tbtu) of LT cargo. The tariff at Kochi terminal stood at Rs 81.03/mmbtu.

Capex: PLNG has approved/implemented a capex plan of Rs 35bn, towards capacity augmentation at Dahej terminal. The plan envisages construction of two storage tanks, a third jetty and de-bottlenecking of the terminal. Incrementally the company is also exploring the feasibility of an FSRU based terminal at Gopalpur, at an estimated investment of Rs 15-16bn and also an option of investing in polypropylene production facility. Given these are multi-year projects the expected capex for FY23 is estimated at Rs 12bn

Valuation

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We value PLNG at Mar 23 TP of Rs 320/sh on DCF basis, implying a target PE multiple of 15.5x FY24e, vs 10.5x FY24e 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.