25 April 2012
4QFY12 Results Update | Sector: Oil & Gas
Petronet LNG
BSE SENSEX
S&P CNX
17,151
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
5,202
PLNG IN
750.0
186/125
-14/-14/13
104.3
2.0
CMP: INR139
TP: INR185
Buy
Petronet LNG (PLNG) reported EBITDA of INR3.7b (up 4% YoY, but down 27% QoQ) for 4QFY12, was below our
estimate due to (1) lower volumes at 135tbtu (v/s est of 145tbtu), and (2) lower marketing margins.
Volumes were impacted by lower off-take from (1) fertilizer plants due to seasonal maintenance shutdowns,
and (2) power plants due to low demand for high-priced merchant power. The shutdown of fertilizer plants
also resulted in APM gas being available to other customers who shifted from LNG to APM gas in 4QFY12.
PAT increased 19% YoY (but down 17% QoQ) to INR2.45b, lower than our estimate of INR2.97b. 4QFY12 EPS of
INR3.3 translates into an annualized EPS of INR13.2 v/s FY12 EPS of INR14.1.
Total gas sales during the quarter were 135tbtu (up 7% YoY and down 7% QoQ) implying capacity utilization of
107%, and included 93.5tbtu of long-term, 26.4tbtu of spot and 15tbtu of re-gas services volumes. We compute
marketing margins on spot volumes at ~INR20/mmbtu (v/s INR36/mmbtu in 3QFY12) on spot cargoes over and
above the company's base re-gasification charges of INR35/mmbtu.
We have cut our FY13/14 earnings estimates by 8% to INR13.1 and 2% to INR15.5, respectively, led by (1) lower
utilization at Dahej (107% v/s 112% earlier), and (2) lower marketing margins (INR15/15/mmbtu v/s INR23/20/
mmbtu). We model Dahej volumes at 10.7/11.5mmt (earlier 11.2/12.2mmt) and Kochi volumes at 0.25/1.25mmt
in FY13/14, respectively.
Valuation and view:
We expect PLNG's earnings to remain muted in FY13 as Kochi terminal's depreciation would
start coming in, corresponding revenue contribution would start accruing only in FY14. We believe the next cycle
of earnings growth would come post FY13 led by (1) volume ramp-up at Kochi, (2) second jetty commissioning at
Dahej, and (3) progress on Dahej expansion and Gangavaram terminal. The stock trades at 10.6x FY13E EPS of
INR13.1. Maintain our target price of INR185 based on the average of two valuation methodologies (1) P/E (13x
FY13E EPS), and (2) DCF (INR199). Maintain
Buy.
Harshad Borawake
(HarshadBorawake@MotilalOswal.com); Tel: +91 22 3982 5432
Deepak Dult
(Deepak.Dult@MotilalOswal.com); Tel: +91 22 3982 5445

Petronet LNG
Key takeaways from concall
Reasons for lower volumes:
Management explained that lower 4QFY12 volumes
were largely due to seasonal factors (reduced off-take by fertilizer and power
consumers). It also noted that 3QFY12 was an exceptional quarter (volumes -
133.4tbtu in 1Q, 135tbtu in 2Q, 145tbtu in 3Q and 135tbtu in 4Q).
Fertilizer plants were shutdown for seasonal maintenance.
Lower power demand in North India due to weather conditions.
Marketing margins:
The PNGRB has been asked by the Petroleum Ministry examine
the marketing margins, primarily for domestic gas. PNGRB is collecting information
from companies who are selling to end-users. PLNG's management feels LNG should
not be under PNGRB purview. PLNG's terminals are registered with PNGRB.
Outlook on new Kochi terminal
Pipeline connectivity within 60km will be ready and will supply gas to Kochi
refinery, FACT and other customers within the range. Pipeline to Karnataka
(Bangalore) will be ready by2HCY13, which would boost volumes.
Kochi volumes in FY14 could be 1-1.5mmt (our assumption of 1.25mmt). Expected
to rise to 5mmtpa utilization before FY16.
Out of the INR44b earmarked for the project, PLNG has spent INR32b till March
31, 2012.
For modeling purposes, can build Kochi re-gas charge at USD1/mmbtu (in-line),
based of 16% equity IRR.
Dahej expansion
New jetty would be commissioned between Dec 2013 and March 2014.
FEED (Front end engineering design) for Dahej capacity expansion would be
completed in next six months.
Gangavaram Terminal (new 5mmtpa terminal located on east coast)
Financial closure will take place in next 6-8 months.
Terminal will get commissioned in 4-4.5 years and in the interim company may
lease FSRU (floating storage & re-gas unit, typically of 2.5-3mmtpa).
25 April 2012
2

Petronet LNG
Dahej capacity utilization at 107%; volumes down QoQ led by lower off-
take
As against our estimate of 145tbtu, re-gasified volumes in 4QFY12 stood at 135tbtu
(2.7mmt) v/s 125.8tbtu (2.5mmt) in 4QFY11 and 144.9btu (2.9mmt) in 3QFY12. Long-
term volume at 93.5tbtu was in-line with the 9MFY12 average volume of 94.2tbtu.
However, there was sharp decline in re-gasification services volume from 21.8tbtu in
3QFY12 to 15tbtu in 4QFY12.
Dahej capacity utilization at 107% during the quarter
Re-gasification volumes declined QoQ (tbtu)
4QFY12 EPS at INR3.3; annualized EPS of INR13.2 (FY12 EPS INR14.1)
Source: Company, MOSL
25 April 2012
3

Petronet LNG
Domestic gas scarcity to benefit PLNG:
Gas production from RIL's KG-D6 basin has
fallen below 35mmscmd and is not expected to recover before FY1415. Even
production from other domestic fields is either flat or increasing at a very small
pace. We believe that PLNG would be a beneficiary of this situation as imported
LNG will be needed to meet the domestic shortfall.
Expansion projects highlights
Buoyed by the significant gas demand in India, PLNG plans to eventually expand
its capacity from current 10mmtpa to 28mmtpa (Dahej: 10+2.5+5, Kochi: 5 and East
Coast: 5). Management believes that the upcoming gas grid in the country will
further boost demand for RLNG.
Kochi terminal work on track:
Work on the Kochi terminal is on track and the
management is confident of commissioning the project in 3QFY13. PLNG has spent
INR32b so far of the total capex of INR44b. Management guides for 16% IRR for its
contracts at Kochi terminal with re-gasification charge ~USD1/mmbtu.
Dahej second jetty completion by end of FY14:
The work on PLNG's second jetty in
Dahej, which will increase its capacity to 13mmtpa (capex of INR9b). is scheduled
to be completed between Dec-2013 and March 2014.
The management plans to expand Dahej nameplate capacity from 10mmtpa to
15mmtpa and FEED for the same is expected to get completed in next 6 months.
PLNG has tied up 2.5mmtpa and 1mmtpa of its new capacity with GAIL and GSPC,
respectively. GAIL and GSPC, in turn, will make equity investments and the
advances will be adjusted against re-gas charges for quantity processed for them.
Gangavaram financial closure in next 6 to 8 months:
PLNG plans to set-up a 5mmtpa
terminal at Gangavaram in Andhra Pradesh. Management expects financial closure
in the next 6 to 8 months and completion of terminal will take 4-4.5 years. In
interim period, company may lease a floating storage re-gasification unit (FSRU).
Capacity to expand to 28mmtpa by FY16/17
Source: Company, MOSL
25 April 2012
4

Petronet LNG
Valuation and view
We have lowered our earnings estimates by 8% to INR13.1 for FY13 and by 2% to
INR15.5 for FY14 to factor in (1) lower utilization at Dahej (107% v/s 112% earlier),
and (2) lower marketing margins (INR15/15/mmbtu v/s INR23/20/mmbtu earlier).
We model Dahej volumes at 10.7/11.5mmt (earlier 11.2/12.2mmt) and Kochi
volumes at 0.25/1.25mmt in FY13/14 respectively.
We expect PLNG's FY13 earnings to remain muted as Kochi terminal's depreciation
would start coming in, corresponding revenue contribution would only start
accruing only in FY14. We believe the next cycle of earnings growth would come
post FY13 led by (1) volume ramp-up at Kochi, (2) second jetty commissioning at
Dahej, and (3) progress on Dahej expansion and Gangavaram terminal. The stock
trades at 10.6x FY13E EPS of INR13.1. Maintain our target price of INR185 based on
the average of two valuation methodologies (1) P/E (13x FY13E EPS), and (2) DCF
(INR199). Maintain
Buy.
Our key assumptions
Exchange Rate (INR/USD)
Capacity (mmt)
Dahej Volume
Kochi Volume
Total (mmt)
Utilization rate (%)
Re-gassification Charges (INR/mmbtu)
Dahej
Long term
Chg (%)
Short term
Kochi
Long term
Chg (%)
Short term
Average
EPS (INR)
FY09
46.1
5.0
6.4
6.4
128
FY10
47.6
10.0
7.9
7.9
79
FY11
45.5
10.0
8.8
8.8
88
FY12
47.9
10.0
11.1
11.1
111
FY13E
50.0
15.0
10.7
0.3
11.0
73
FY14E
48.1
18.0
11.5
1.3
12.7
71
29.5
4.8
44.5
30.9
4.7
10.9
32.5
5.0
52.9
34.1
5.0
62.4
35.8
5.0
50.8
50.0
37.6
5.0
52.6
32.8
6.9
23.5
5.4
31.7
9.9
50.0
-
50.0
50.0
34.0
40.5
43.5
14.1
13.1
15.5
Source: Company, MOSL
25 April 2012
5

Petronet LNG
Petronet LNG: an investment profile
Company description
Petronet LNG was formed as a joint venture by the
government of India to import LNG and set up LNG
terminals in India. Each promoter, GAIL, ONGC, IOCL and
BPCL, holds 12.5% stake in Petronet. The company owns
India's first LNG receiving and re-gasification terminal
of 5mmtpa at Dahej commissioned in Feb-04 and is
setting up 5mmtpa terminal at Kochi. It has a long-term
contract of 7.5mmtpa with Ras Gas Qatar tied back-to-
back with customers in India.
The LNG business is currently not governed by any
regulation. Recently, concerns have emerged on the
likely control of marketing margins. If this happens,
it could pose a risk to its earnings.
Recent developments
Finalized the location of its 5mmtpa East Coast
terminal at Gangavaram in Andhra Pradesh.
In January 2012, PLNG increased its re-gasification
charges by 5%.
Key investment arguments
PLBG has been increasing re-gasification charges by
5% every year leading to a stable income stream.
It also earns premium margins on short term
contracts enabling it to make 25% RoE.
Its new terminal at Kochi is expected to get
operational by FY13 and can be the next growth
driver for the company.
Petronet plans to add 8mmtpa capacity at Dahej and
5mmtpa capacity new terminal at Gangavaram in
Andhra Pradesh.
Valuation and view
The stock trades at 10.6x FY13E EPS of INR13.1.
Our target price is INR185 based on average of DCF
and PE methodology. Maintain
Buy.
Sector view
Decline in the KG-D6 gas supply and delay in the likely
increase augurs well for the LNG terminals in the
country.
We expect gas supply in India to remain constrained
in coming years, thereby benefitting the LNG
importers like PLNG.
Key investments risks
The long term gas sourcing is only from Ras gas Qatar,
which is a notional risk.
Target price and recommendation
Current
Price (INR)
139
Target
Price (INR)
185
Upside
(%)
33.1
Reco.
Buy
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
13.1
15.5
Consensus
Forecast
14.7
16.2
Variation
(%)
-10.7
-4.3
FY13
FY14
Stock performance (1 year)
Shareholding pattern (%)
Mar-12
Promoter
Domestic Inst
Foreign
Others
25 April 2012
50.0
7.1
24.8
18.1
Dec-11
50.0
7.9
25.0
17.1
Mar-11
50.0
10.0
21.9
18.2
6

Petronet LNG
Financials and Valuation
25 April 2012
7

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