Buy stocks of Petronet LNG; target of Rs 195

“The Q4FY12 results of Petronet LNG (PLNG) were below our estimates primarily on account of lower than expected regassification volume. In Q4 FY12, the PAT increased 18.8% Y-o-Y but declined 16.9% sequentially to Rs. 2.5 bn as against our expectations of Rs. 2.8 bn. For the quarter, the net sales increased 59.9% Y-o-Y and 0.7% sequentially to Rs. 63.8 bn driven by increase in volume and LNG prices.”

“As against our expectation of 147.4 TBTU of regassification volume the company regassified 134.9 TBTU. The sequential decline in regassification volume was on account of lesser off take from some fertilizer plants due to normal maintenance shut downs and lower demand from power plants. The long term volume declined 5.4% Y-o-Y and 4.6% sequentially to 93.5 TBTU while the tolling volume increased 10.4% Y-o-Y but declined 31.6% sequentially to 15 TBTU. PLNG's 7.5 mmtpa long term contract are on take or pay basis so the volume is likely to pick up in the coming quarters. The gross margin of the company came below expectations as the capacity utilization of the plant came down from ~ 115% in Q3 FY12 to ~106% in 4Q FY12, thus, impacting the efficiencies gains and a likely lower than expected marketing margin on the spot/short term cargoes. The increase in the spot LNG prices could put pressure on the company's ability to charge higher marketing margins.”

“We cut our FY13E and FY14E regassification volume assumption downwards at the Dahej terminal to 10.7 mmt and 11.4 mmt factoring in the lower capacity utilization. We lower our FY13E and FY14E EPS estimates to 13.1 and 15.1 respectively as against the earlier estimates of 14.9 and 15.8 respectively, to factor in the lower than expected capacity utilization at the Dahej terminal. The uncertainty over the regulation of LNG business (regassification and marketing margin) has led to the recent correction in the stock price. However the management reiterated that the LNG business does not fall under the purview of the regulator and, hence, the concerns are unwarranted. At CMP, PLNG is trading at 10.3x FY13E and 9.0x FY14E EPS of Rs. 13.1and Rs. 15.1 respectively and at an EV/EBIDTA of 7.5x FY13E and 5.9x FY14E. We maintain buy rating on PLNG with a revised DCF based target price of Rs 195 per share,” says FinQuest Securities research report.