19 October 2020
Update | Sector: Oil & Gas
Petronet LNG
BSE SENSEX
40,432
S&P CNX
11,873
CMP: INR223
TP: INR335 (+50%)
Buy
Dahej terminal – Hercules lifting the company
Our recent interaction with PLNG and GAIL highlight that there could be some
further delay in commissioning of the Kochi-Mangalore pipeline due to technical
difficulties. Thus, according to the revised guidance, the pipeline is expected to be
completed by end-CY20. This could impact capacity utilization assumptions for the
Kochi terminal in 3QFY21 (revised down from 30% to 21%, resulting in marginal
EPS cut of 3% for FY21).
The Dahej and Kochi terminals are operating at pre-COVID levels since the first
week of Jun’20. This is due to higher gas offtake from sectors like fertilizers and
power, which are the clear leaders, while city gas distribution (CGD) is a laggard.
Domestic gas production is down 10% YoY in Aug’20 and 13% YoY for YTD FY21;
with total gas consumption down 8% YoY in Aug’20 and 3% YoY for YTD FY21.
All of these have resulted in LNG imports forming ~58-59% of the total gas
consumption (much higher v/s last five year average of ~52%).
We expect imports to increase further as demand from refining and other
segments normalize in the coming months, aided by new fertilizer plants.
Further, on the MoU with Tellurian (final decision is expected in FY21), PLNG
continues to reiterate that it is non-binding in nature and the IRR benchmark for
the company stands at 16%. However, the bigger question is whether the
investment is required at all. The market has changed considerably now and
people are not keen on investments in such projects because there is no dearth of
gas right now. Maintain Buy.
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
PLNG IN
1,500
334.4 / 4.6
291 / 171
-6/-23/-19
867
Financials & Valuations (INR b)
Y/E March
2020 2021E
Sales
354.5
274.3
EBITDA
39.9
45.5
Adj. PAT
27.7
27.7
Adj. EPS (INR)
18.5
18.5
EPS Gr. (%)
28.5
0.1
BV/Sh.(INR)
73.0
78.6
Ratios
Net D:E
-0.4
-0.5
RoE (%)
26.4
24.4
RoCE (%)
25.4
21.3
Payout (%)
43.2
70.0
Valuations
P/E (x)
11.8
11.8
P/BV (x)
3.0
2.8
EV/EBITDA (x)
7.9
6.8
Div. Yield (%)
3.2
4.9
FCF Yield (%)
8.7
9.0
2022E
376.3
50.7
31.9
21.3
15.1
84.9
-0.6
26.0
23.6
70.0
10.2
2.6
5.7
5.7
11.5
Reality check on increasing LNG imports…
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Jun-20 Mar-20 Jun-19
50.0
50.0
50.0
7.9
29.2
13.0
7.8
29.3
12.9
10.3
27.0
12.7
FII Includes depository receipts
Stock Performance (1-year)
Petronet LNG
Sensex - Rebased
370
290
210
130
Gas demand has seen the fastest revival in the entire energy basket post the
COVID-led demand destruction, with LNG imports supporting the recovery.
Taking advantage of lower spot prices, various power plants have moved
away from coal. While fertilizer plants (+16% YoY i.e. 6.7mmscmd in YTD
FY21) have clocked the highest ever monthly imports (in Jul’20),
refinery/petchem imports also grew (+11% YoY i.e. 3.3mmscmd in YTD FY21)
due to lack of domestic gas production.
Having said that, in Aug’20, total gas demand from CGDs is still down ~31%
YoY (~9.5mmscmd), with domestic gas consumption down 20% YoY
(~3.5mmscmd) and LNG consumption down 45% YoY (~6mmscmd).
Assuming that domestic gas production remains hushed and CGD demand
returns to pre-COVID levels (of ~30.5mmscmd from ~21mmscmd currently),
imports could form ~60% of total consumption v/s ~58% currently (similar to
the highest percentage imports achieved in Feb’20).
ONGC has also guided that the KG basin would see some delay in production
as many vendors have enforced force majeure.
Dahej terminal is operating at >100% capacity of 17.5MMTPA (63mmscmd)
v/s Jan-Feb’20 average of 92% capacity (58mmscmd). Kochi terminal is
operating at 20% capacity (3.6mmscmd). PLNG expects Dahej utilization to
remain healthy at 100%+ going forward in the year.
…Dahej emerging as the biggest beneficiary
Swarnendu Bhushan- Research Analyst
(Swarnendu.Bhushan@MotilalOswal.com)
Sarfraz Bhimani - Research Analyst
(Sarfraz.Bhimani@MotilalOswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.