MOSL: PETRONET LNG (Buy)-On the way to glory

​Petronet LNG: On the way to glory

(PLNG IN, Mkt Cap USD4.8b, CMP INR207, TP INR274, 32% Upside, Buy)

• EBITDA grew 16% YoY (+21% QoQ) to INR7.4b, higher than our estimate of INR6.9b. While utilization was in line with our estimate, lower opex resulted in the EBITDA beat. PAT increased 16% YoY (-7% QoQ) to INR4.4b, below our estimate of INR4.6b, due to lower other income of INR707m (est. of INR1b; +43% YoY, -53% QoQ) and a higher tax rate of 34% in 1QFY18 v/s 32% in 1QFY17 and 24% in 4QFY17.
• Throughput at Dahej grew 11% YoY (+4% QoQ) to 184TBtu, implying ~97% utilization v/s 93% in 4QFY17. This includes 105TBtu long-term (flat YoY, -2% QoQ), 79TBtu third-party (+57% YoY, +13% QoQ) and 0.8TBtu pure short-term (+92% YoY, -92% QoQ) throughput.
• Kochi utilization increased to 12% in 1QFY18 from 4% in 4QFY17. This includes 4.8TBtu pure short-term (+66% YoY, +234% QoQ), 1.9TBtu third-party (+32% QoQ) and 0.8TBtu long-term throughput.

Gas demand growth critical, but take-or-pay contracts provide earnings certainty

• Incremental gas demand will be a function of liquid v/s gas economics; however, take-or-pay contracts offer earnings certainty for PLNG.
• As against 15mmt capacity, PLNG has ~16mmt (RasGas: 8.5, new contracts: 7.5) long-term take-or-pay contracts. We do not see much of a problem in utilization of the Dahej facility.
• GAIL has awarded a tender for the construction of the last leg on the Kochi-Mangalore pipeline. Completion of the ~400km pipeline would give access to anchor consumers like MCF, OMPL and MRPL refinery, all of which are ready to consume gas. Once completed, it will also help in Kochi LNG terminal ramp-up.