1 August 2012
1QFY13 Results Update | Sector: Oil & Gas
Petronet LNG
BSE SENSEX
S&P CNX
17,236
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
5,229
PLNG IN
750.0
186/122
3/-11/-10
109.7
2.0
CMP: INR146
TP: INR205
Buy
1QFY13 numbers ahead of estimates:
Petronet LNG's (PLNG) reported numbers for 1QFY13 were ahead of
consensus/our estimates. EBITDA was INR4.6b v/s our estimate of INR4b. PAT was up 5% YoY and 10% QoQ at
INR2.7b v/s our estimate of INR2.3b. Profitability was higher than we had expected despite lower volumes
(127tbtu v/s our estimate of 131tbtu) due to: (a) higher implied marketing margin of USD0.64/mmbtu (v/s our
estimate of USD0.28/mmbtu), and (b) INR200m savings on account of dry docking of one charter ship. Variation
(in percentage terms) is higher at the PAT level due to lower interest expense and higher other income.
Capacity expansion projects on track:
PLNG expects to commission its Kochi terminal by December 2012 and
also expects simultaneous completion of phase-I (44km) of its Kochi-Bangalore pipeline, through which it
will supply gas. Further, it expects to complete (a) its second jetty project at Dahej by 4QFY14 (additional
capacity of 3mmt), (b) Dahej expansion by the end of 2015 (taking overall capacity to 18mmt), and (c)
Gangavaram terminal by the end of 2016 and interim FSRU (floating storage and re-gasification unit) by the
end of 2014.
Valuation and view:
We expect PLNG to continue to benefit from India's large gas deficit through (a) higher
utilization (>100%) levels, and (b) higher marketing margins on spot volumes. FY13 earnings would be muted
- while the company would begin to account for Kochi terminal's depreciation in FY13, corresponding revenue
contribution would start only in FY14. PLNG's next earnings growth cycle would come post FY13, led by (1)
volume ramp-up at Kochi, and (2) commissioning of the second jetty at Dahej. We model Dahej volumes at
10.6/11.5mmt and Kochi volumes at 0.2/1.1mmt for FY13/14. The stock trades at 9.8x FY14E EPS of INR15. Our
target price of INR205 is based on the average of two valuation methodologies (1) P/E (13x FY14E EPS), and (2)
DCF (INR215). Maintain
Buy.
Harshad Borawake
(HarshadBorawake@MotilalOswal.com); +91 22 3982 5432
Deepak Dult
(Deepak.Dult@MotilalOswal.com); +91 22 3982 5445
Investors are advised to refer through disclosures made at the end of the Research Report.
1

Petronet LNG
Key concall highlights
Spot LNG prices now prevailing at ~USD11/mmbtu:
Management indicated that
the spot LNG prices has fallen down to USD11/mmbtu. With the increase
merchant power rates and fall in LNG prices, PLNG feels that the merchant
power plants should be comfortable to buy LNG.
In-talks with Yamal LNG project:
Management confirmed that it is partner to
the ongoing talks for 15% stake by consortium of ONGC, IOC in 15mmtpa Yamal
LNG project in Russia. However, talks are at initial stages and decision would be
taken in next two months.
Too early to discuss Kochi Power Plant:
Management indicated that, though the
Kerala govt. has invited PLNG to setup a power plant in Kochi, it is too early to
discuss the same as the talks are in the preliminary stage.
INR200m savings on ship charter due to dry-docking:
For its long-term volumes,
PLNG charters 3 LNG ships (on day-rate basis), and dry-docking of one ship for a
month saved INR200m for PLNG; while volumes will be compensated by
efficient scheduling of other cargoes.
As on 30 June 2012, cash balance and current investments stood at INR8.7b and
INR2.5b, respectively.
Gross Debt stood at INR30b, which includes INR20b for Kochi terminal.
Volumes were down QoQ led by fertilizer plant shutdown; capacity
utilization at 101%
As against our estimate of 131tbtu, re-gasified volumes in 1QFY13 stood at 127tbtu
(2.5mmt) v/s 133.4tbtu (2.7mmt) in 1QFY12 and 135btu (2.7mmt) in 4QFY12. Sales
volumes during 1QFY13 were impacted by lower offtake by fertilizer companies which
took seasonal shutdown in March and April. Also, the shutdown of fertilizer plants
resulted in APM gas being available to other customers who shifted from LNG to APM
gas in 1QFY13.
Long term volume at 96tbtu was higher than FY12 average volume of 94tbtu.
However, there was a sharp decline in re-gasification services volume from 15tbtu
in 4QFY12 to 10.7tbtu in 1QFY13 and also in pure short term volumes from 26.5tbtu
to 20.5tbtu.
Strong marketing margins on short-term cargoes
Adjusting for INR200m savings from ship charter, we estimate PLNG's marketing
margins on spot cargoes at INR35/mmbtu (USD0.6/mmbtu). These are over and above
its base re-gasification charges of INR35/mmbtu.
Domestic gas scarcity to benefit PLNG
RIL's KG-D6 gas production has fallen below 31mmscmd and is not expected to recover
before FY15. Even production from other domestic fields is either flat or increasing at
a very small pace. We believe that domestic gas scarcity augurs well for PLNG as
imported LNG will be needed to meet the domestic shortfall. We expect continued
natural gas demand-supply gap in India will help Petronet LNG to earn higher
marketing margins in near to medium term.
1 August 2012
2

Petronet LNG
Capacity utilization down at 101%
Re-gasification volumes declined QoQ (tbtu)
1QFY13 EPS at INR3.6; annualized EPS of INR14.4 (FY12 EPS INR14.1)
Source: Company, MOSL
Expansion projects updates
PLNG plans to expand its capacity from current 10mmtpa to 28mmtpa (Dahej: 10+2.5+5,
Kochi: 5 and Gangavaram: 5).
Kochi terminal to get complete by Dec-12:
Management is confident of
commissioning 5mmtpa Kochi terminal by Dec-12 and also expects completion of
Phase-1 of Kochi-Bangalore pipeline by the same time. PLNG has spent INR34b so
far of the total capex of ~INR45b, out of which INR14b was from internal accruals.
Management guides for 16% IRR for its contracts at Kochi terminal with re-
gasification charge ~USD1/mmbtu.
Dahej second jetty completion by end of 4QFY14:
PLNG expects to complete work
on second jetty of Dahej by 4QFY14 which will increase capacity of terminal to
13mmtpa. The company has spent INR1b out of total project capex of INR10b.
1 August 2012
3

Petronet LNG
Dahej capacity expansion by 2015-end:
PLNG has plan to complete nameplate
capacity expansion at Dahej terminal from 10mmtpa to 15mmtpa by 2015-end.
Management expects FEED completion and EPC awarding to get complete by end-
2012. 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 project FEED under progress; target project completion by 2016-end:
PLNG plans to set-up a 5mmtpa terminal at Gangavaram in Andhra Pradesh.
Management expects completion of land terminal by 2016-end. For interim period,
company has plan of leasing a floating storage re-gasification unit (FSRU). It expect
to complete marine facilities required for FSRU handling by 2014-end.
PLNG capacity to expand to 28mmtpa by FY16/17
Source: Company, MOSL
Valuation and view
We expect PLNG to continue to benefit from India's large gas deficit through a)
higher utilization levels (>100% utilization) and b) marketing margins on spot
volumes. FY13 earnings will be muted as Kochi terminal's depreciation would
start coming in, corresponding revenue contribution would start accruing only in
FY14.
PLNG's next earnings growth cycle would come post FY13 led by (1) volume ramp-
up at Kochi and (2) second jetty commissioning at Dahej. We model Dahej volumes
at 10.6/11.5mmt and Kochi volumes at 0.2/1.1mmt in FY13/14, respectively.
We are increasing our FY13 EPS by ~3% to factor in strong 1QFY13 results. The stock
trades at 9.8x FY14E EPS of INR15. Our target price of INR205 is based on the average
of two valuation methodologies (1) P/E (13x FY14E EPS), and (2) DCF (INR215).
Maintain
Buy.
1 August 2012
4

Petronet LNG
Our Key Assumptions
Exchange Rate (INR/USD)
Capacity (mmt)
Dahej Volume
Kochi Volume
Total (mmt)
6.4
Utilization rate (%)
128
Re-gassification Charges (INR/mmbtu)
Dahej
Long term
29.5
Chg (%)
4.8
Marketing margin
31.3
Short term
60.8
Kochi
Long term
Chg (%)
Marketing margin
Short term
Average
32.8
EPS (INR)
6.9
FY09
46.1
5.0
6.4
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
53.5
15.0
10.6
0.2
10.8
72
FY14E
52.0
18.0
11.5
1.1
12.6
70
30.9
4.7
-7.7
23.2
32.1
4.0
8.1
40.2
33.8
5.0
28.2
62.0
35.5
5.0
20.0
55.5
50.0
37.2
5.0
15.0
52.2
23.5
5.4
30.0
8.3
50.0
0.0
0.0
0.0
50.0
50.0
34.1
34.8
36.2
14.1
13.1
15.0
Source: Company, MOSL
1 August 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.
Petronet LNG's 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, Petronet increased its regasification
charges by 5%.
Key investment arguments
Petronet 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 9.8x FY14E EPS of INR15.
Our target for Petronet is INR205/sh 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 Petronet LNG.
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)
146
Target
Price (INR)
205
Upside
(%)
40.4
Reco.
Buy
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
13.1
15.0
Consensus
Forecast
14.1
13.0
Variation
(%)
-7.3
15.6
FY13
FY14
Stock performance (1 year)
Shareholding pattern (%)
Jun-12
Promoter
Domestic Inst
Foreign
Others
1 August 2012
50.0
5.9
25.2
18.9
Mar-12
50.0
7.1
24.8
18.1
Jun-11
50.0
9.2
22.9
18.0
6

Petronet LNG
Financials and Valuation
1 August 2012
7

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