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INDIA

Oil and Gas

Petronet LNG

Q4FY12 Result update/Estimate change 26 April 2012

Re-gas volumes plunge; profitability takes a hit

After about eight quarters of secular profit growth, Petronet LNG’s

17.0% QoQ decline in PAT during Q4FY12 was a negative surprise.

The decline was attributed to lower re-gasification volumes (led by

lower LNG imports by GAIL and lower long-term volumes from

Qatar) despite re-gasification margins going up by 5% from January

2012. Spot LNG earned relatively lower re-gasification margins

sequentially thus lowering the average re-gasification charges to

Rs36.7/mmbtu in Q4 from Rs38.6/mmbtu in Q3.



Higher LNG prices lead to higher revenues: Petronet’s revenues surged

by 59.9% YoY while being marginally higher QoQ at Rs63.8bn on account

of higher LNG prices and higher rupee-dollar exchange rate. As volumes

were lower in Q4 compared to Q3, revenues were flattish QoQ despite

higher LNG prices.

Re-gasification volumes decline QoQ due to lower imports by GAIL

and lower long term volumes from Qatar: Petronet’s performance was

affected in Q4 primarily owing to lower re-gasification volumes. The

company processed a total of 134.5TBTUs of LNG of which 93.5TBTUs

were long-term volumes, 26.0TBTUs spot volumes and 15.0TBTUs

re-gasification services offered to GAIL and GSPC. GAIL imported less LNG

due to lower requirement from power players who took shutdowns

during the quarter. Q4 capacity utilisation stood at 105%. Blended

re-gasification charges were also 5% lower QoQ at Rs6.7/mmbtu owing to

lower re-gasification charges for spot LNG.

Y/E March (Rsmn) Q4FY12E Q4FY11 YoY (%) Q3FY12 QoQ (%) Q4FY12E Var. (%)

Net sales 63,754 39,860 59.9 63,303 0.7 62,036 2.8

Operating profit 4,230 3,513 20.4 5,032 (15.9) 4,714 (10.3)

OPM (%) 6.6 8.8 7.9 7.6

PBT 3,651 2,941 24.2 4,389 (16.8) 4,084 (10.6)

PAT (adjusted) 2,451 2,063 18.8 2,954 (17.0) 2,798 (12.4)

Operating Metrics

Total sales vol. (TBTUs) 134.5 125.8 7.0 144.9 (7.2) 145.0 (7.2)

Blended regas.

charges (Rs/mmbtu) 36.7 32.7 12.1 38.6 (5.0) 38.2 (3.9)

Source: Company, Centrum Research



Lower interest cost, higher other income support the bottom-line: As

Petronet prepaid debt during Q3, the interest cost was lower at Rs342mn.

Higher cash balance led to higher other income which stood at Rs221mn

thus benefitting the bottom-line which jumped by 18.8% YoY while

declining by 17.0% QoQ to Rs2.5bn

Kochi to be operational by Q3FY13E and Dahej jetty by Q3FY14E:

PLNG’s Kochi terminal is expected to be operational by Q3FY13E while the

additional jetty at Dahej is likely to become operational by Q3FY14E. LNG

does not form part of the PNGRB regulations as of now and hence PLNG is

currently out of the purview of any regulations. According to the

management it is very difficult to put forward regulations for

re-gasification terminals and hence they do not foresee any threat from

such a move by the government. We believe the regulations threat is

overblown and hence we continue to maintain our ‘Buy’ rating on the

stock. We have changed our estimates taking a conservative 5% decline in

re-gasification margins from CY13 and keeping them constant thereon.

Hence our DCF based price target stands changed at Rs186 (earlier Rs192)

(cost of equity – 11.6%, WACC – 9.6%).

Key Data

Recco (Prev) Buy (Buy) Bloomberg Code PLNG IN

Target (Prev) Rs186 (Rs192) Reuters Code PLNG.BO

CMP Rs139* Current Shares O/S (mn) 750.0

Upside (%) 33.4% Diluted Shares O/S(mn) 750.0

Mkt Cap (Rsbn/USDbn) 104.5/2

Price Performance (%)* 52 Wk H / L (Rs) 186/125

1M 6M 1Yr Daily Vol. (3M NSE Avg.) 1,945,902

PLNG (13.6) (14.4) 1.8 Face Value (Rs) 10

NIFTY 0.1 (0.2) (11.6) USD = Rs52.5

*as on 25 April 2012

Source: Bloomberg, Centrum Research

Blended re-gasification margins

(Rs/mmbtu)

55.0

50.0

45.0

40.0

35.0

30.0

25.0

20.0

15.0

28.3

28.4

25.3

48.7

21.3

25.3

25.4

26.6

30.8

30.4

32.5

32.7

36.8

37.0

38.6

36.7

Q1FY09

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1 FY12

Q2 FY12

Q3 FY12

Q4 FY12

Source: Company, Centrum Research

Re-gasification volumes

(TBTUs)

160.0

120.0

80.0

40.0

0.0

78.8

75.0

85.1

82.5

98.8

113.8

95.2

91.8

95.1

99.8

119.7

125.8

133.4

135.1

144.9

134.5

Q1FY09

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1 FY12

Q2 FY12

Q3 FY12

Q4 FY12

Source: Company, Centrum Research

Earning Revision

FY13E

FY14E

(Rs mn) Prev. Updated Chg (%) Prev. Updated Chg (%)

Revenues 231,539 230,869 (0.3) 282,413 281,220 (0.4)

EBITDA 19,564 18,935 (3.2) 23,467 22,321 (4.9)

PAT 10,536 9,960 (5.5) 11,531 10,374 (10.0)

Total Volumes (TBTU) 575.7 575.7 - 713.1 713.1 -

Blended re-gas.

margin ( Rs/mmbtu) 38.4 37.2 (3.1) 37.0 35.3 (4.6)

Source: Company, Centrum Research

Rohit Nagraj

rohit.nagraj@centrum.co.in

+91 22 4215 9854

Y/E Mar (Rsmn) Rev YoY (%) EBITDA EBITDA (%) Adj. PAT YoY (%) RoE (%) RoCE (%) EPS PE (x PB (x) EV/EBITDA

FY11 131,973 23.9 12,163 9.2 6,196 53.2 25.2 12.5 8.3 16.9 3.9 11.1

FY12 226,959 72.0 18,292 8.1 10,575 70.7 34.1 17.0 14.1 9.9 3.0 6.8

FY13E 230,869 1.7 18,935 8.2 9,960 (5.8) 25.6 14.5 13.3 10.5 2.5 7.2

FY14E 281,220 21.8 22,321 7.9 10,374 4.2 22.8 14.3 13.8 10.1 2.2 6.0

FY15E 282,448 0.4 23,176 8.2 10,969 5.7 21.2 14.1 14.6 9.5 1.9 5.4

Source: Company, Centrum Research Estimates

Please refer to important disclosures/disclaimers inside

Centrum Equity Research is available on Bloomberg, Thomson Reuters and FactSet


Financials

Exhibit 1: Income Statement

Y/E March (Rsmn) FY11 FY12 FY13E FY14E FY15E

Revenues 131,973 226,959 230,869 281,220 282,448

Growth in revenues (%) 23.9 72.0 1.7 21.8 0.4

COGS 118,012 205,867 209,638 256,318 256,571

% of net sales 89.4 90.7 90.8 91.1 90.8

Power and Fuel 651 716 752 789 829

% of net sales 0.5 0.3 0.3 0.3 0.3

Employee Costs 306 298 327 360 396

% of net sales 0.2 0.1 0.1 0.1 0.1

Admin Sales & Dist. Exp 68 136 139 169 169

% of net sales 0.1 0.1 0.1 0.1 0.1

Others 774 1,649 1,078 1,263 1,307

% of net sales 0.6 0.7 0.5 0.4 0.5

EBITDA 12,163 18,292 18,935 22,321 23,176

Y-o-Y growth (%) 43.7 50.4 3.5 17.9 3.8

EBITDA Margin (%) 9.2 8.1 8.2 7.9 8.2

Depreciation & Amortisation 1,847 1,842 2,590 4,008 4,413

EBIT 10,316 16,451 16,346 18,313 18,763

Interest expenses 1,931 1,774 2,624 3,663 3,300

Other Income 680 849 925 879 958

EBT bef. Prior period items 9,064 15,525 14,647 15,530 16,421

EBT 9,064 15,525 14,647 15,530 16,421

Provision for tax 2,868 4,950 4,687 5,156 5,452

Effective tax rate (%) 31.6 31.9 32.0 33.2 33.2

Net Profit 6,196 10,575 9,960 10,374 10,969

Y-o-Ygrowth (%) 53.2 70.7 (5.8) 4.2 5.7

Adjusted Net Profit Margin (%) 4.7 4.7 4.3 3.7 3.9

Source: Company, Centrum Research Estimates

Exhibit 2: Balance Sheet

Y/E March (Rsmn) FY11 FY12 FY13E FY14E FY15E

Equity Share Capital 7,500 7,500 7,500 7,500 7,500

Reserves 19,302 27,698 35,043 41,058 47,669

Shareholders' fund 26,802 35,198 42,543 48,558 55,169

Debt 32,161 30,340 38,340 34,882 31,424

Deferred Tax Liability 3,480 3,630 3,630 3,630 3,630

Total Capital Employed 62,443 69,167 84,513 87,070 90,223

Total Fixed Assets 27,024 27,515 60,725 66,918 63,504

CWIP 22,029 30,600 200 200 200

Investments 11,649 1,399 6,399 6,399 6,399

Inventories 2,480 7,124 8,735 10,680 10,690

Sundry Debtors 8,472 12,859 14,750 15,623 15,692

Cash & bank balances 1,540 9,839 6,505 4,648 11,151

Other current assets 1,336 86 86 86 86

Loans and advances 47 2,689 2,689 2,689 2,689

Total current assets 13,875 32,597 32,765 33,726 40,308

Current liabilities & provisions 12,134 22,943 15,576 20,172 20,188

Net current assets 1,741 9,654 17,189 13,554 20,120

Total Assets 62,443 69,168 84,513 87,070 90,223

Source: Company, Centrum Research Estimates

Exhibit 3: Cash flow

Y/E March (Rsmn) FY11 FY12 FY13E FY14E FY15E

PBT 9,064 15,525 14,647 15,530 16,421

Interest 1,931 1,774 2,624 3,663 3,300

Depreciation 1,847 1,842 2,590 4,008 4,413

Other Income (680) (849) (925) (879) (958)

Op. profit bef. WC changes 12,163 18,292 18,935 22,321 23,176

Change in working capital (395) 386 (10,869) 1,778 (63)

Tax (Including FBT) (2,650) (4,950) (4,687) (5,156) (5,452)

Cash from operations 9,117 13,728 3,379 18,943 17,661

Change in fixed assets (8,887) (10,904) (5,400) (10,200) (1,000)

Change in investments (6,263) 10,250 (5,000) - -

Other income 680 849 925 879 958

Cash from investments (14,470) 195 (9,475) (9,321) (42)

Free cash flow (6,033) 13,075 (7,021) 8,743 16,661

Change in borrowings 7,163 (1,822) 8,000 (3,458) (3,458)

Dividends paid (1,743) (2,179) (2,615) (4,358) (4,358)

Interest paid (1,931) (1,774) (2,624) (3,663) (3,300)

Others (0) 150 (0) 0 (0)

Cash from financing 3,488 (5,625) 2,761 (11,479) (11,116)

Net cash flow (1,865) 8,299 (3,334) (1,857) 6,503

Opening cash balance 3,405 1,540 9,839 6,505 4,648

Closing cash balance 1,540 9,839 6,505 4,648 11,151

Source: Company, Centrum Research Estimates

Exhibit 4: Key Ratios

Y/E March FY11 FY12 FY13E FY14E FY15E

Margin Ratios (%)

EBITDA Margin 9.2 8.1 8.2 7.9 8.2

PBIT Margin 7.8 7.2 7.1 6.5 6.6

PBT Margin 6.9 6.8 6.3 5.5 5.8

PAT Margin 4.7 4.7 4.3 3.7 3.9

Growth Ratio (%)

Revenue 23.9 72.0 1.7 21.8 0.4

EBITDA 43.7 50.4 3.5 17.9 3.8

Net Profit 53.2 70.7 (5.8) 4.2 5.7

Return Ratios (%)

ROE 25.2 34.1 25.6 22.8 21.2

ROCE 12.5 17.0 14.5 14.3 14.1

ROIC 15.5 20.9 17.2 16.6 16.9

Turnover Ratios

Asset turnover ratio (x) 1.8 2.5 2.3 2.6 2.6

Avg. collection period (days) 23.4 20.7 23.3 20.3 20.3

Avg. payment period (days) 31.6 22.2 22.0 22.0 22.0

Per share Ratios (Rs)

Basic EPS 8.3 14.1 13.3 13.8 14.6

Fully diluted EPS 8.3 14.1 13.3 13.8 14.6

Book value 35.7 46.9 56.7 64.7 73.6

Cash earnings per share 10.7 16.6 16.7 19.2 20.5

Dividend per share 2.0 2.5 3.0 5.0 5.0

Gearing Ratio (x)

Debt-equity 1.2 0.9 0.9 0.7 0.6

Interest coverage ratio 5.3 9.3 6.2 5.0 5.7

Valuation (x)

P/E (Fully Diluted) 16.9 9.9 10.5 10.1 9.5

P/BV 3.9 3.0 2.5 2.2 1.9

EV/EBITDA 11.1 6.8 7.2 6.0 5.4

EV/Sales 1.0 0.6 0.6 0.5 0.4

M-cap/Sales 0.8 0.5 0.5 0.4 0.4

Source: Company, Centrum Research Estimates

2

Petronet LNG


Appendix A

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3

Petronet LNG


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4

Petronet LNG

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