EUR 120.00 For Business Accounts Only

MOSL : PETRONET LNG: Volumes dip, but outlook remains intact

.  PETRONET LNG: Volumes dip, but outlook remains intact

(PLNG IN, Mkt Cap USD4.1b, CMP INR216, TP INR298, 38% Upside, Buy)

• PLNG reported an in line EBITDA of INR10.6b (flat YoY, but down 9% QoQ) despite lower-than-expected utilization due to pay-or-use charges of INR4.1b. Throughput at Dahej stood at 89%, with Kochi utilization ~19%.
• The management expects better utilization only once spot LNG prices cool off after the winter season ends in the northern hemisphere (v/s ~USD42/mmBtu in Jul'22).
• Despite the immediate challenges, the management remains confident of achieving volumes of over 850tBtu in FY23 (Dahej/Kochi utilization of ~90%/23%, supported by the tied up contracts).
• Kochi tariff has been reduced to INR70/mmBtu (from INR79/mmBtu) from Apr'19. The company has applied for a 5% escalation since then, resulting in a price of INR81/mmBtu at present. Capacity at Dahej will be expanded to 22.5mmtpa over two phases, while Kochi will see a ramp-up in utilization from newly connected consumers.
• The lack of clarity on capital allocation and possible returns from new investments is likely to keep the stock under pressure.
• Factoring in the same, we tweaked our EBITDA estimates by -13%/+6% for FY23/FY24, given the lower volume offtake in the near term, led by higher spot LNG prices. We maintain our Buy rating.

Inline EBITDA; softer volumes

• Total volumes were 3% below our estimate at 208tBtu (flat YoY, but up 9% QoQ). Dahej/Kochi utilization stood at 89%/19% (196tBtu/12Tbtu).
• EBITDA came in line at INR10.6b (flat YoY, but down 9% QoQ), with PAT at INR7b (8% higher than our estimate, up 10% YoY, but down 7% QoQ).

Valuation and view - maintain our Buy rating

• We remain positive on India's gas story, which is set to clock 6-8% CAGR  as per our gas demand-supply model, led by: a) the development of new CGDs, and b) higher consumption at fertilizer, refining, and petchem plants.
• Total capex for FY23-24 stands at INR20b, including initial capex on petrochemical plant, two new tanks at Dahej at a capex of INR12b by CY24 and third jetty at INR17b.
• Of the planned capex, LNG retailing will ramp up only in phases, with four LNG retail outlets along highways likely over the next six months.
• FSRU on the east coast of India may cost INR15b, along with brownfield expansion of 5mmtpa at the Dahej terminal at a cost of INR6b (to be undertaken in phases by CY24 or early CY25).
• The stock trades at 5.0x FY24E EV/EBITDA. We value PLNG on a DCF basis to arrive at a fair value of INR298 and maintain our Buy rating.