Petronet LNG rating – Buy: Volumes were steady amidst industry decline

Petronet LNG rating – Buy: Volumes were steady amidst industry decline

PLNG reported flat volume y/y against JEFe of +3%. With India’s LNG imports down 12% y/y in Q4FY21 owing to a sharp spike in Spot prices, PLNG gained 700bps market share y/y. Ebitda missed JEFe by 12% on lower volume and negative operating leverage. We cut earnings by 6-6.5% for FY22-23E, owing to the impact on volume from the continued COVID-related restrictions. Maintain Buy with new Rs 320 PT amid attractive valuation at 11x FY22E P/E (~20% disc to hist avg).

Volumes: Volumes at Dahej was -1% y/y, as against -12% for industry. Utilisation at 91% was the lowest since Q1FY21 on lower Spot vol in January owing to sharp spike in Spot LNG prices. Kochi volumes rose 8% y/y but remains a small contributor to overall volumes, with ~ 95% of overall volumes still coming from Dahej. Overall volumes were almost flat y/y, missing JEFe (3% growth). Ebitda 12% below JEFe: Ebitda missed JEFe on lower volume, higher employee cost owing to COVID-related provisions and higher-than-expected fixed costs resulting in negative operating leverage. PAT missed JEFe as Other Income declined 56% q/q, owing to Rs 180 mn of FX losses booked during the quarter as opposed to Rs 300 mn FX gain in Q3FY21.

We have cut FY22-23E EPS by 6-6.5%: PLNG’s Q1FY22 volume has seen some impact from the pandemic-related restrictions across the country. We have lowered our vol est for FY22-23E by 1.5%-2% and built in negative operating leverage.

Latest domestic gas auction has limited negative impact on LNG volume outlook: The recently auctioned 5.5 mmscmd from the new KG basin saw low demand from SOE fertiliser plants, IOCL’s refineries along JHPL, and CGD players — the three key LNG-consuming segments, mitigating a key concern of domestic gas replacing LNG usage by the target customers of PLNG.

Maintain Buy: We maintain Buy on PLNG with Rs 320 PT (from Rs 335 earlier), based on DCF assuming a 12% CoE, also noting that current valuation at ~ 11x FY22E P/E is attractive in the context of leadership position among LNG operators and strong earnings visibility.

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