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One-off drives margins; volume pick-up awaited…

About the stock: Petronet LNG, a JV between leading PSU oil companies, is involved in LNG import and regasification.

* The company operates two LNG terminals at Dahej and Kochi

* Total nameplate capacity of the company is 22.5 MMTPA

Q3FY22 Results: Petronet LNG’s Q3FY22 results were better than estimates.

* Revenue was up 71.9% YoY to | 12597.2 crore (our estimate: | 11403.3 crore). Total volume was 208 tbtu, below estimate of 223.2 mmbtu

* Blended margin was at | 91.5/mmbtu, higher than estimate of | 59.4 mmbtu. The company booked use or pay charges of | 347.8 crore for CY21, which led to higher blended margins. EBITDA was at | 1732.2 crore, up 29.7% YoY (our estimate: | 1102.5 crore)

* PAT was at | 1143.5 crore, up 30.2% YoY (our estimate: | 684.7 crore)

What should investors do? With increase in domestic production, emergence of new terminals and lack of new big growth opportunities in the medium term, we estimate muted volume outlook in the near term.

* We retain our HOLD rating on the stock

Target Price and Valuation: We roll over valuations to FY24E and value Petronet LNG at | 220 i.e. 10x P/E on FY24E EPS.

Key triggers for future price performance:

* Petronet LNG is India’s leading play in import of LNG in the country and will be a beneficiary of the government’s aim to increase the share of natural gas in the energy basket to 15% over the long term

* The 17.5 mmtpa Dahej terminal has been booked for 15.75 mmtpa under long term, thus providing visibility to long term volumes. Increase in Kochi terminal utilisation can support volume pick-up

Alternate Stock Idea: Besides Petronet, in our oil & gas coverage we also like Gail

* Gail is India’s leading gas transmission company, which is a beneficiary of increasing gas consumption. Stable volume growth along with higher profitability from gas trading, petchem and LPG segment due to higher oil prices will add value

* BUY with target price of | 180

Key takeaways of recent quarter & conference call highlights

Q3FY22 Results: Blended margin above expectations

* Total volume was at 208 tbtu (down 11.5% YoY, 13.3% QoQ). It was lower than estimate of 223.2 mmbtu as regas volume at 76 mmbtu was lower than estimates

* he blended margin was higher than estimate of | 59.4 crore and was at | 91.5/mmbtu. During the quarter, the company booked use or pay charges of | 347.8 crore for CY21 (on account of lower capacity utilisation by customers), which led to higher blended margins

Q3FY22 Earnings Conference Call highlights

* Proposed capital expenditure: i) | 1245 crore for two LNG tanks at Dahej ii) | 1650 crore for jetty construction iii) Dahej capacity expansion to 22.5 MMT in two phases iv) | 1600 crore for FSRU v) feasibility studies going on for setting up terminal on east coast vi) petrochemical project with polypropylene capacity of 500 KTPA

* Dahej terminal utilisation was 86% while Kochi terminal utilisation was 19%

* Ind-AS impact was | 11 crore

* The company is currently thinking of continuing Qatargas deal post 2028

* The company is still in discussions with customers regarding reduction in Kochi tariff. It may reduce tariff at Kochi terminal if customers decide to increase volume offtake

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