Petronet LNG: Opportune play on gas deficit

India Infoline News Service | Mumbai |

Widening deficit in supply-demand of domestic natural gas

CMP Rs162, Target Rs187, Upside 15.4%

India has been a gas starved country for long. The situation has only worsened with 1) declining production at RIL’s KG-D6 field, 2) natural decline at ONGC’s high profile fields and 3) robust increase in demand. In such a scenario, LNG imports have partly met the supply deficit and Petronet LNG, country’s largest importer has been the biggest beneficiary of this. Demand for LNG is expected to remain strong in the country given 1) shortage of power supply, 2) our expectations of a fall in LNG prices on the back of rising global supply and weakening Japanese demand and 3) muted ramp up expected in domestic gas production.


To leverage on this Petronet has embarked on an expansion program whereby 1) it is commencing its new terminal at Kochi with a capacity of 5mtpa in FY14, 2) its expanding capacity at Dahej in two phases a) expansion of marine facilities by end of FY14 and b) increase in regasification and storage capacities by latter half of FY16, 3) new terminal on the east coast at Gangavaram by FY17. Eventually, the company will have a capacity of 25mtpa by end of FY17E as compared to 10mtpa currently.


We like Petronet due to its robust business model wherein it passes any fluctuations in currency and LNG to its customers, thereby protecting its earnings in a gyrating global LNG market. Furthermore, with substantial volumes being locked in through long term contracts with suppliers and consumers, revenue visibility is robust. On the customer side, it has offtake agreements with GAIL, IOC and BPCL.  It charges a fixed re-gasification margin (which rise 5% per annum) on the volumes handled and thereby operates in an annuity like business model.


Given the robust business model and expansion of capacity, we expect Petronet to report revenue CAGR of 26% over FY12-14E. Further, with limited threat to re-gasification margins, earnings visibility is also robust. Notably, Petronet RoE’s have sustained above 20% for the last 5 years. With regulatory risks also limited, we maintain our BUY recommendation with a price target of Rs187.  

Financial summary

Y/e 31 Mar (Rs m) FY12 FY13E FY14E FY15E
Revenues 226,959 291,360 361,373 479,148
yoy growth (%) 72.0 28.4 24.0 32.6
Operating profit 18,292 20,913 23,640 29,559
OPM (%) 8.1 7.2 6.5 6.2
Reported PAT 10,575 11,735 11,469 14,845
yoy growth (%) 70.6 11.0 (2.3) 29.4
EPS (Rs) 14.1 15.6 15.3 19.8
P/E (x) 11.6 10.4 10.7 8.2
Price/Book (x) 3.5 2.7 2.2 1.8
EV/EBITDA (x) 7.8 7.1 6.1 5.1
Debt/Equity (x) 0.9 0.7 0.5 0.4
RoE (%) 34.1 29.2 22.9 24.1
RoCE (%) 26.3 26.2 25.0 27.7
Source: Company, India Infoline Research

BSE 254.75 6.80 (2.74%)
NSE 255.00 7.15 (2.88%)

***Note: This is a NSE Chart

 

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