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Volume normalizes with LNG price drop

Q3FY24 EBITDA up 2% YoY and 40% QoQ

Petronet LNG’s (PLNG IN) Q3 EBITDA/PAT was INR 17.1bn/INR 11.9bn, higher than INR 12.6bn/INR 8.7bn estimated, due to recognition of INR 6.1bn income towards use-or-pay (UoP) for customers, for CY23. Q3 EBITDA/PAT rose 40%/45% QoQ but were flat YoY.

PLNG reaching agreement with customers on dues recovery

PLNG recognized UoP charges of INR 4.3bn in FY22, INR 8.5bn in FY23 and INR 6.1bn in FY24, for lower capacity utilization by customers. Management indicated that PLNG is in advanced stage of agreement with customers to recover UoP in FY22 and FY23 through higher volume offtake by customers in future or via bank guarantee. Thus, we recognize INR 12.8bn receivables as future cash inflow and consequently raise our TP by INR 25/share.

Dahej plant – Full utilization seen

Total volumes re-gasified in Q3 stood at 232tbtu, largely in line with our estimates of 237tbtu. Long-term volumes for Dahej facility were flat YoY at 104tbtu, and tolling LNG volumes were higher at 110tbtu against 47tbtu in Q3FY23. Volume from the Kochi terminal was flat YoY/QoQ at 13tbtu.

Valuations: Downgrade to Reduce; TP revised to INR 260

We downgrade PLNG to Reduce from Accumulate as the stock has runup 37% in the past three months on expectations of volume recovery with decline in LNG prices. Our TP already assumed existing 17.5mn tonne Dahej capacity utilization at 100%, while assuming 40% utilization in the upcoming 5mn tonne capacity. But we revised our TP to INR 260 from INR 235, led by one-time past UoP charges recovery. We expect the stock to re-rate only when PLNG is able to gain long-term customers for its upcoming expanded Dahej capacity – Such possibility is dim due to competition from other new LNG terminals. We value PLNG via DCF at 10.9% cost of equity (unchanged) and 90% long-term Dahej utilization (unchanged).

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