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Petronet LNG's Q3FY18 results (Neutral) - Strong volumes offset by lower margins

Q3FY18 result highlights

• PLNG reported earnings at Rs5.3bn (IDFCe Rs5.8bn) up 33% yoy, with EBITDA of Rs8.5bn (IDFCe Rs9bn) reporting an increase of 40% yoy.
• 9MFY18 EBITDA of Rs24.9bn has grown 26% yoy, while 9MFY18 PAT of Rs15.6bn has grown 26% yoy.
• For 3Q, long term regas volumes at 123 tbtu +10% yoy, (IDFCe of 130 tbtu). Overall volumes of 215 tbtu, +15% yoy, ahead of estimates of 205 tbtu. Kochi volumes of 8tbtu implying 13% utilisation for the quarter.
• Gross margins for Q3FY18 at Rs6bn (est Rs7bn), implying Rs47/mmbtu of margins, 6% lower qoq even as its well above the – average margins over FY17 of Rs43.2/mmbtu. Marketing margins at Rs35/mmbtu vs IDFCe Rs55/mmbtu.

Key positives: Dahej utilisation at 112% despite the operation of Dabhol terminal.

Key negatives: Ex of Gorgon, long term volume offtake is less than 100% for 9MFY18.

Impact on financials: estimates unchanged post this quarter. 

Valuations & View

PLNG’s strong earnings performance over the last 12 months has driven a 10% outperformance to the Sensex (6M). While we are enthused by the performance of the Dahej terminal and progress at Kochi, we remain cautious on the stock due to the following i) Q2-Q3 volumes beat driven in part by an uptick in gas fired power driven by a short term shortage of coal which may reverse gradually ii) the seasonal spike of US$2/mmbtu on an average has created short term margin pressure, with some more idle capacity (at Shell hazira) to be created in Gujarat post the commissioning of RIL’s Petcoke gasification unit by H1FY19 iii) An estimated 30-35 mmscmd (9-10mt LNG equivalent) of additional domestic gas supply by FY21E can create pressure on offtake for PLNG, even at ToP levels, volumes can be 5-6% below current estimates, iv) Valuations of 14.3x FY20E PER/ 9.1x EV/E adequately capture the 13% CAGR in EPS over FY18-20E. Reiterate Neutral