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Petronet Lng16aug21 India Equity Research | Oil & Gas © August 16, 2021 Result Update Emkay Petronet LNG Your success is our success Refer to important disclosures at the end of this report CMP Target Price Rs 215 Rs 270 (▼) as of (August 16, 2021) 12 months Earnings slightly above estimates; Rating Upside valuations attractive BUY (■) 26.0 % . Q1FY22 standalone EBITDA/PAT were down 3%/up 2% qoq (up 16%/22% yoy) at Change in Estimates Rs10.5bn/Rs6.36bn, beating our estimates by 4%/7% on account of a 2% beat each in EPS Chg FY22E/FY23E (%) (2)/(3) volumes and margins, and lower-than-expected depreciation. Target Price change (%) (6.8) Target Period (Months) 12 . The Dahej terminal operated at 88% capacity (vs. 85% est). Long-term volume fell 13% qoq but tolling was steady (up 2%). Kochi utilization was 24% (vs. 27% est). PLNG’s total Previous Reco BUY volumes were down 4% qoq at 209tbtu (or 4.1mmt and up 10% yoy). Emkay vs Consensus EPS Estimates . Implied spot LNG marketing margin was USD2.1/mmbtu (inline). EBITDA/mmbtu was up FY22E FY23E 1% qoq at Rs50.4 (up 5% yoy). Margins were supported by Rs5.52bn regas income in Q1. Emkay 18.0 19.8 Other expenses were 23% above estimate at Rs1.6bn due to forex losses. Consensus 20.1 22.7 . We cut FY22E/23E/24E EPS by 2%/3%/4%, assuming lower volumes due to rising Mean Consensus TP (12M) Rs 275 domestic gas supplies and high spot LNG prices. We lower the TP by 7% to Rs270 from Stock Details Rs290 as we roll over to Sep’22E from Mar’22E. Maintain Buy but with an EW stance. Bloomberg Code PLNG IN Highlights: Spot LNG volumes at Dahej rose from 5tbtu to 6tbtu, while regas volumes in Face Value (Rs) 10 Kochi. also grew by 1tbtu qoq. Employee costs were 8% above estimate (up 19% yoy/flat qoq) Shares outstanding (mn) 1,500 at Rs429mn. Depreciation was 7% lower at Rs1.9bn, partly offset by a 5% miss in Other 52 Week H/L 275 / 201 Income at Rs685mn. Interest costs fell 2% qoq to Rs800mn. Gorgon volumes at Dahej stood M Cap (Rs bn/USD bn) 322 / 4.33 at 6tbtu. The share of profits from JV (Adani Port) rose to Rs364mn from Rs146mn in Q4FY21. Daily Avg Volume (nos.) 4,279,708 The Kochi regas tariff reset is still under discussion. The use-or-pay dispute resolution is Daily Avg Turnover (US$ mn) 13.3 pending (Rs1.44bn yet to be paid; Rs545mn paid under protest by three customers for a four- year period). There was no new update on the Kochi tariff reset. 5% hike was taken in Apr’21. Shareholding Pattern Jun '21 Guidance: PLNG will try to make up for lost volumes ahead. Q2 should be good with Dahej Promoters 50.0% utilization at 90-95% in Jul’21. Spot LNG prices are high now at USD16.5/mmbtu. Term LNG FIIs 31.1% is cheaper at ~USD9 and customers are looking to shift. PLNG has 16.5mmtpa of capacity DIIs 5.1% booked, incl. a 0.75mmtpa 2-year contract. PLNG does not see much volume upside at Kochi Public and Others 13.8% for the next 1-2 years (till Bangalore connect). Qatargas contract renewal has to be decided by CY23. It is a good contract and should be extended but T&C should reflect today’s reality, Price Performance including pricing. Capex target for FY22/23 is Rs5-7bn/Rs10bn. Q1 capex was not significant. (%) 1M 3M 6M 12M PLNG may maintain the current dividend payout for FY22/23. Dahej capex would be ~Rs40bn Absolute (3) (11) (12) (15) till FY24-25, with Rs12.4bn/Rs17bn/Rs10bn on new tanks/jetty/expansion (to 22.5). The Rel. to Nifty (7) (20) (19) (42) addition of CBG plants and LNG stations will be in a phased manner, with feed-feasibility- profitability-IRR tested before scaling up. PLNG expects assured margins with 16% IRR. Relative price chart Capex will be on dispensers. 275 Rs % 10 Valuation: We value PLNG using DCF. Our TP implies a 13.5x Sep’23E target PE multiple. 260 -2 Key risks are adverse petroleum/gas prices, slowdown, competition and capital misallocation. 245 -14 230 -26 Please see our sector model portfolio (Emkay Alpha Portfolio): Oil & Gas (Page 9) 215 -38 Financial Snapshot (Standalone) 200 -50 (Rs mn) FY20 FY21 FY22E FY23E FY24E Aug-20 Oct-20 Dec-20Feb-21 Apr-21 Jun-21 Aug-21 Revenue 354,520 260,229 361,657 404,288 412,309 Petronet LNG (LHS) Rel to Nifty (RHS) EBITDA 42,659 46,995 43,312 47,657 49,964 Source: Bloomberg This report is solely produced by Emkay Global. The EBITDA Margin (%) 12.0 18.1 12.0 11.8 12.1 following person(s) are responsible for the production of the recommendation: APAT 25,875 29,494 27,047 29,655 30,289 EPS (Rs) 17.2 19.7 18.0 19.8 20.2 Sabri Hazarika EPS (% chg) 15.8 14.0 (8.3) 9.6 2.1 [email protected] +91 22 6612 1282 ROE (%) 27.9 26.1 22.2 22.1 20.4 P/E (x) 12.4 10.9 11.9 10.9 10.6 Tanay Gabhawala [email protected] EV/EBITDA (x) 7.7 6.6 7.0 6.1 5.6 +91 22 6612 1336 P/BV (x) 2.9 2.8 2.5 2.3 2.1 Source: Company, Emkay Research Emkay Research is also available on www.emkayglobal.com and Bloomberg EMKAY<GO>. Please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore. Petronet LNG (PLNG IN) India Equity Research | Result Update Exhibit 1: Actual vs. Estimates (Q1FY22) Consensus Estimates Variation Rs mn Actual Estimates Comment (Emkay) (Bloomberg) Emkay Consensus Total Revenue 85,979 86,043 83,976 0% 2% EBITDA 10,543 10,125 10,637 4% -1% Due to beat in volumes and EBITDA/mmbtu EBITDA Margin (%) 12% 12% 13% 49bps -40bps Net Profit 6,357 5,960 6,388 7% 0% Lower-than-expected depreciation Source: Company, Emkay Research Exhibit 2: Quarterly summary Rs mn Q1FY21 Q2FY21 Q3FY21 Q4FY21 Q1FY22 YoY QoQ FY20 FY21 YoY Net sales 43,836 55,578 67,212 70,533 80,459 84% 14% 331,190 237,159 -28% Regas service income^ 5,000 6,780 6,070 5,220 5,520 10% 6% 23,330 23,070 -1% Total revenue 48,836 62,358 73,282 75,753 85,979 76% 13% 354,520 260,229 -27% Raw material cost 38,365 47,199 58,434 62,817 73,396 91% 17% 304,959 206,815 -32% Employee cost 360 338 343 430 429 19% 0% 1,258 1,471 17% Other expenses 1,011 1,188 1,152 1,596 1,612 59% 1% 8,408 4,948 -41% Total expenditure 39,736 48,726 59,929 64,842 75,436 90% 16% 314,625 213,234 -32% EBITDA 9,099 13,632 13,353 10,911 10,543 16% -3% 39,895 46,995 18% Depreciation 1,936 1,952 1,925 2,028 1,916 -1% -6% 7,761 7,841 1% EBIT 7,164 11,680 11,428 8,883 8,627 20% -3% 32,134 39,155 22% Interest cost 881 850 815 813 800 -9% -2% 4,032 3,360 -17% Other income 684 1,596 1,111 492 685 0% 39% 3,726 3,882 4% PBT before exceptional 6,966 12,426 11,724 8,561 8,512 22% -1% 31,827 39,677 25% Exceptional items - - - - - -721 - PBT 6,966 12,426 11,724 8,561 8,512 22% -1% 31,107 39,677 28% Current tax 1,880 3,070 2,960 2,340 2,320 23% -1% 8,600 10,250 19% Deferred tax -116 83 -21 -13 -165 -4,470 -67 Total tax 1,764 3,153 2,939 2,328 2,155 22% -7% 4,131 10,183 147% Reported PAT 5,202 9,273 8,785 6,234 6,357 22% 2% 26,976 29,494 9% Rep. EPS (Rs.) 3.5 6.2 5.9 4.2 4.2 22% 2% 18.0 19.7 9% Adjusted PAT 5,202 9,273 8,785 6,234 6,357 22% 2% 24,963 29,494 18% Adj. EPS (Rs.) 3.5 6.2 5.9 4.2 4.2 22% 2% 16.6 19.7 18% Shares O/S (mn) 1,500 1,500 1,500 1,500 1,500 0% 0% 1,500 1,500 0% EBITDA margin 19% 22% 18% 14% 12% 11% 18% NPM 11% 15% 12% 8% 7% 8% 11% Effective tax rate 25% 25% 25% 27% 25% 13% 26% Dahej Utilization 82% 109% 99% 93% 88% 103% 96% Dahej Volumes (mmt) 3.6 4.8 4.4 4.0 3.8 7% -5% 17.4 16.7 -4% Long Term (tbtu) 78 103 113 102 89 14% -13% 406 396 -2% 3rd Party Regas (tbtu) 100 135 104 97 99 -1% 2% 454 436 -4% Spot LNG (tbtu) 3 5 5 5 6 100% 20% 25 18 -28% Kochi Utilization 14% 17% 20% 22% 24% 17% 19% Kochi Volumes (mmt) 0.2 0.2 0.3 0.3 0.3 67% 7% 0.8 0.9 9% Long Term (tbtu) 8 8 8 11 11 38% 0% 32 35 9% 3rd Party Regas (tbtu) - - 3 1 2 100% 4 4 0% Spot LNG (tbtu) 1 3 2 2 2 100% 0% 7 8 14% Total Volumes (tbtu) 190 254 235 218 209 10% -4% 928 897 -3% Regas Tariff (Rs./mmbtu) Dahej 51.7 51.7 51.7 54.3 54.3 5% 0% 49.9 52.4 5% Kochi 83.1 83.1 83.1 83.1 87.3 5% 5% 79.1 83.1 5% Services Regas Tariff (Rs./mmbtu) ^ 50.0 50.2 56.7 53.3 54.7 9% 3% 51.0 52.6 3% Cal.
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