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Strong performance; Outlook positive

Petronet LNG was formed by the Indian government to import liquefied natural gas (LNG) and set up LNG terminals in India. The company operates two regasification terminals situated in Dahej (17.5 MMTPA installed capacity) and Kochi (5 MMTPA).

* Consolidated revenue up 16.5% QoQ (+71.9% YoY) in Q3FY22, driven by higher prices and volume growth.

* EBITDA rose 33.6% QoQto Rs. 1,732cr (+29.7% YoY), as EBITDA margin expanded 170bps QoQ to 13.7% (-450bps YoY) on higher realisations. Subsequently, PAT grew 41.8% QoQ to Rs. 1,159cr (+31.5% YoY).

* Strong demand for natural gas, limited competition, capacity expansion, better operational efficiencies and efficient commercial management should drive company performance in future. We thereby reiterate our BUY rating on the stock with a rolled forward TP of Rs. 254 based on 11x FY24E adj. EPS.

Healthy topline growth due to efficient commercial management

In Q3FY22, consolidated revenue grew 71.9% YoY to Rs. 12,597cr (+16.5% QoQ), largely helped by elevated pricing of spot LNG, thereby translating to higher marketing margins. Overall LNG volume processed at 208 TBTU (vs. 240 TBTU in Q2FY22 and 235 TBTU in Q3FY21). Dahej terminal processed 196 TBTU of LNG (vs. 225 TBTU in Q2FY22 and 222 TBTU in Q3FY22) with 86% utilization rate for the quarter. Total throughput processed at 657 TBTU in 9MFY22 (vs. 679 TBTU in 9MFY21). EBITDA grew 33.6% QoQ to Rs. 1,732cr (+29.7% YoY), as EBITDA margin expanded 170bps QoQ to 13.7% (-450bps YoY) on higher cost of sales at 84.9% (vs. 79.7% in Q3FY21). Subsequently, PAT grew 31.5% YoY to Rs. 1,159cr (+41.8% QoQ).

Key Quarter highlights

* Board approved plans to increase the capacity of Dahej LNG import terminal from 17.5MMTPA to 20MMTPA (Phase-1).

* The company has also proposed to invest Rs 1,700cr to build a 2.5km jetty at Dahej terminal in India, adjacent to the existing 2nd berth for unloading of LNG, transport to the storage tanks and importing liquid ethane and propane.

* The company paid a special interim dividend of Rs. 7 per share on 6th Dec. 2021.

Company to foray into petrochemical business

Over the next 4-5 years, the company plans to invest around Rs. 40,000cr towards capacity expansion and in overseas supply sources, including Rs. 12,500cr investment in a propane dehydrogenation plant, and Rs.1,600cr in a floating LNG import facility in Gopalpur, Odisha. The firm is also exploring opportunities to make investments overseas in gas fields as well as liquefaction plants. Domestically, it will invest Rs. 17,000cr for LNG import capacity addition at Dahej (from current 17.5mn tonnes to 22.5mn tonnes per annum), and towards building additional storage tanks and bays for truck loading, and to foray into the lucrative petrochemicals business. It will also set up a 4mn tonnes floating storage LNG import facility off Gopalpur port.

Valuation

Petronet LNG is well positioned to take advantage of strong demand for natural gas in future, with limited competition, diversified and reputed client base, favourable initiatives by the government and sustained recovery in economic activities. Healthy liquidity position, capacity expansion, better utilization rate and favourable prices augur well for the company to drive performance in future. The stock is currently trading at attractive valuations. Maintaining a positive outlook, we reiterate our BUY rating on the stock with a rolled forward TP of Rs. 254 based on 11x FY24E adj. EPS.

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