Petronet LNG's Q2FY19 results (Outperformer) - A miss driven by lower volumes
Q2FY19 result highlights
- PLNG reported earnings at Rs5.6bn (IDFCe Rs5.7bn) down 4% yoy, with EBITDA of Rs8.8bn (IDFCe Rs9bn) declining 2% yoy
- This is the first quarter of negative growth in 12 quarters, driven by muted volumes.
- Long term regas volumes at 116 tbtu -8% yoy, (IDFCe 115 tbtu). Overall volumes of 211 tbtu, flat yoy, (IDFCe 215 tbtu). Kochi volumes of 6 tbtu (8% utilisation) for Q2.
- Gross margins of Rs6.2bn (-8% yoy), below estimates of Rs6.4bn driven by lower volumes and lower marketing margins. Blended EBITDA margins of Rs41.9/mmbtu, however were -1% yoy, ahead of estimated of Rs40.5/mmbtu.
- Interim dividend of Rs5.5/sh announced for the first time
Key positives: Dahej utilisation remains at 110%
Key negatives: Kochi utilisation remains tepid. Higher staff costs
Impact on financials: estimates unchanged post this quarter.
Valuations & View
PLNG has seen its stock decline 4% (last 3M), buffeted by concerns on sustaining the strong growth momentum seen in FY16-18 (EPS CAGR of 57%) and rumors of less than optimal capital allocation in terminals/projects overseas in Bangladesh/Sri Lanka. We however remain positive on growth prospects over FY19-20E via strong underlying demand for LNG, further expansion of 2.5mt at Dahej and growing visibility of offtake infra at Kochi which implies a continuation of high double digit growth over FY19-20E. Additionally, insistence on offtake visibility before preceeding with any new project and the interim dividend announcement should out capital concerns to rest. The decision to invest in Qatar’s LNG export capacity expansion is some time away and we await details before taking a call on the returns from the same. As of now therefore, with a CAGR of 12% in EPS over FY18-20E despite a stellar base and valuations of just 13x FY20E EPS (RoE/ROCE of 21.5/22.9% in FY20E), we see valuations at attractive levels. Reiterate Outperformer, with our DCF based target price at Rs270/sh, 20.5% upside from here
Petronet LNG develops, designs, constructs, owns and operates Liquefied Natural Gas (LNG) import and regasification terminals in India. Co. operates through the natural gas business segment. Co.'s terminals include Dahej LNG terminal, Kochi LNG terminal and Solid cargo port. Co. owns and operates a LNG regasification terminal with name plate capacity of 10 MMTPA at Dahej, in the State of Gujarat. Co. also has commissioned another LNG terminal with name plate capacity of 5 MMTPA at Kochi, in the State of Kerala. Solid Cargo Port Terminal has facilities to import/export bulk products, such as coal, steel and fertilizer.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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