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Spark Capital - PLNG 4QFY13 Results Review: Disappointing quarter on seasonally weak volumes; Reiterate Buy




Spark Capital Advisors(India) Private Limited


02 May 2013





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Disappointing quarter on seasonally weak volumes; Reiterate Buy Petronet LNG (PLNG) reported lower than expected EBITDA of Rs. 4.3bn (9% below est.) falling by 18% qoq (up 3% yoy) on lower third party cargo volumes. While LT Rasgas volumes (93.9tbtu) and spot volumes (24.4tbtu) remained high, third party tolling volumes (3.7tbtu vs. 13.5tbtu in 3Q) disappointed. GAIL/GSPC struggled to get advanced customer commitments in a surging RLNG price scenario (winter effect). Overall throughput was 96% during the quarter. Nevertheless, tolling income (other operating income) fell at a lower rate than third party tolling volumes due to take or pay compensation. Blended spreads grew by 18% yoy (flat qoq) to ~Rs. 43/mmbtu. Spot marketing margins remained resilient at $0.50/mmbtu, though lower than $0.69 in 3Q. PAT of Rs. 2.45bn remained flat yoy but declined by 23% qoq, resulting in an EPS of Rs. 3.27. While 4Q earnings disappointed on lower volumes due to temporary spike in RLNG prices (Jan-Feb), structurally demand for RLNG at $14-15/mmbtu (CIF) remains intact. We expect volumes to rebound in subsequent quarter. Maintain Buy with TP of Rs. 210 Kochi Project: The terminal is likely to be commissioned by mid of July’13. Throughput in FY14E is likely to be less than 0.5mmt and subsequent ramp up is dependent on GAIL’s phase II PL which is fraught with RoU issues. The process of acquiring RoUs is progressing well in Kerala but the TN stretch is stalled as TN govt disallowed digging through farm lands. GAIL has filed a writ petition in Madras HC against TN govt’s direction and expect clarity soon. We conservatively expect completion of Phase II PL over two years and hence pencil in Kochi ramp up only in FY16E. Kochi Regas tariff: PLNG has finalised a regas tariff of Rs. 62/mmbtu with 5% annual escalation for initial two years. This is higher than earlier guidance of around $1. Dahej throughput visibility: Despite increased competition from Shell’s Hazira capacity expansion (3.5MMT to 5MMT) and commissioning of GAIL’s Dabhol LNG terminal, management expects volumes to remain strong in FY14E and guides for utilisation levels in excess of 100% due to 1) Existing LT contract (7.5MMT), 2) Pre booking of 28 service cargo slots (1.75MMT) by GAIL (16 slots) and GSPC (12 slots) for CY13 and 3) short/spot term contracts. Second Jetty: Project is on track for commissioning before Mar’14. This would enable PLNG to increase overall Dahej’s throughput by 1.5-2mmtpa. LT service contract of 1.2mmtpa (FY15E onwards) with GSPC provides strong visibility. While the Kochi growth story has become a bit back ended (FY16E), timely commissioning of second jetty and sustained marketing margins along with 5% escalation in tariffs would support earnings in FY15E.

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