Lower Spot LNG Prices to Drive Growth: Maintain HOLD · (Mar’20), we believe lower spot LNG...
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Petronet LNG CMP* (Rs) 271 Upside/ (Downside) (%) 9 Bloomberg Ticker PLNG IN Market Cap. (Rs bn) 395 Free Float (%) 50 Shares O/S (mn) 1,500 Oil & Gas | India Institutional Equity Research 3QFY20 Result Update | February 11, 2020 1 Target Price: Rs296 HOLD Lower Spot LNG Prices to Drive Growth: Maintain HOLD Petronet LNG (PLNG) has reported EBITDA of Rs11.1bn (+31% YoY and -5% QoQ) in 3QFY20, exceeding our estimate by 7%. EBITDA growth is backed by stellar volume performance, 5% rise in regasification tariffs and adoption of Ind AS 116 with ‘Lease Liability’. Its PBT grew by 11% YoY and 2% QoQ, 8%/6% higher than ours/consensus estimates. Reported net profit was higher due to adoption of lower tax rate. Net profit increased by 19% YoY to Rs6.75bn, (8%/2% higher than ours and consensus estimates). Despite delay in commissioning of Kochi-Mangalore pipeline (Mar’20), we believe lower spot LNG prices are a new growth driver, which will likely improve the LNG volume growth rate >9%/6% in FY20E/FY21E. Marginally increasing our earnings estimate by 1.1%/2.3% for FY20/21E owing to lower oil prices, slight up-tick in Kochi terminal tariff and increasing other income on higher cash and cash equivalent in books, we maintain HOLD recommendation on the stock with a DCF-based Target Price of Rs296. Stellar Operating Performance to Continue PLNG processed total LNG volume of 233TBTU in 3QFY20 (+15% YoY and -7% QoQ). Dahej terminal operated at 100% of its expanded capacity and processed 222TBTU (+13% YoY). Kochi terminal handled 11TBTUs of LNG at capacity utilisation of 17.5% (record level). In 3QFY20, stellar operating performance led by rise in India’s overall LNG imports (12% YoY) and increased LNG consumption from City Gas Distribution and fertiliser sector. Further, spot LNG prices were lower (average US$5.73/mmbtu vs. US$9.95/mmbtu in 3QFY19). Global LNG supply in CY19 increased by ~13% YoY led by commissioning of new capacities. Further, ~118MMT of new LNG capacity has already been sanctioned and will get commissioned over the next few years. The lower spot LNG pricing scenario seems to be a new growth driver for PLNG. Outlook & Valuation Delay in commissioning of Kochi-Mangalore pipeline (by Mar’20 now) and likely downward revision of Kochi regasification tariffs (from Rs104 to Rs79/mmbtu) could impact net profit by ~4%. However, Kochi terminal likely to touch utilisation levels to 30% in FY21. We expect stellar operating performance will lead to 8% CAGR in earnings over FY20E-FY22E. Further, PLNG hiked tariffs by 5% at Dahej and Kochi terminal. At CMP, the stock trades at 12.8x (below long-term 1-yr forward average 15.8x) of FY21 EPS. Further, we expect its RoCE/RoE to improve from 23%/22% in FY19 to 25%/24% in FY21E, as the Company is likely to sustain consistent growth in EBITDA and PAT over the next 2 years. We maintain HOLD recommendation on the stock with a DCF- based Target Price of Rs296. Share price (%) 1 mth 3 mth 12 mth Absolute performance 0.5 (4.4) 20.2 Relative to Nifty 2.3 (5.4) 10.2 Shareholding Pattern (%) Sep-19 Dec-19 Promoter 50.0 50.0 Public 50.0 50.0 Key Financials Y/E Mar (Rs.mn) FY20E FY21E FY22E Net Sales 333,240 336,171 350,155 EBITDA 41,182 47,045 48,787 EBITDA margin (%) 12.4% 14.0% 13.9% Net Profit 29,510 31,691 33,552 EPS(Rs.) 19.7 21.1 22.4 YoY growth (%) 32% 7% 6% RoE (%) 25% 24% 22% RoCE (%) 24% 25% 23% PER (x) 13.7 12.8 12.1 P/BV 3.5 3.0 2.7 EV/ EBITDA 9.0 7.8 7.5 1 Year Stock Price Performance Note: * CMP as on February 10, 2020 Quarterly Performance (Standalone) Rs mn 3QFY20 3QFY19 YoY(%) 2QFY20 QoQ(%) Revenue 89,102 100,977 (11.8) 93,611 (4.8) EBITDA 11,076 8,481 30.6 11,604 (4.6) EBITDA margins 12.4 8.4 403bps 12.4 3bps EBIT 9,116 7,444 22.5 9,644 (5.5) Other income 842 884 (4.8) 975 (13.7) Finance cost 940 215 336.5 1,051 (10.6) PBT 9,017 8,113 11.1 8,847 1.9 Net Profit 6,752 5,653 19.4 11,031 (38.8) Net profit margins 7.6 5.6 198bps 11.8 (420bps) EPS 4.5 3.8 19.4 7.4 (38.8) Source: Company, RSec Research Research Analyst : Yogesh Patil Contact : (022) 4303 4632 Email : [email protected] Estimate Change % change FY20E FY21E Net Sales (6.6) (1.8) Gross Margins 0.9 0.0 EBITDA 1.0 0.0 Net Profit 1.1 2.3 EPS 1.1 2.3 200 210 220 230 240 250 260 270 280 290 300 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20
Transcript of Lower Spot LNG Prices to Drive Growth: Maintain HOLD · (Mar’20), we believe lower spot LNG...
Petronet LNGCMP* (Rs) 271
Upside/ (Downside) (%) 9
Bloomberg Ticker PLNG IN
Market Cap. (Rs bn) 395
Free Float (%) 50
Shares O/S (mn) 1,500
Oil & Gas | India
Institutional Equity Research
3QFY20 Result Update | February 11, 2020
1
Target Price: Rs296
HOLD
Lower Spot LNG Prices to Drive Growth: Maintain HOLD
Petronet LNG (PLNG) has reported EBITDA of Rs11.1bn (+31% YoY and -5% QoQ) in 3QFY20, exceeding our estimate by 7%. EBITDA growth is backed by stellar volume performance, 5% rise in regasification tariffs and adoption of Ind AS 116 with ‘Lease Liability’. Its PBT grew by 11% YoY and 2% QoQ, 8%/6% higher than ours/consensus estimates. Reported net profit was higher due to adoption of lower tax rate. Net profit increased by 19% YoY to Rs6.75bn, (8%/2% higher than ours and consensus estimates). Despite delay in commissioning of Kochi-Mangalore pipeline (Mar’20), we believe lower spot LNG prices are a new growth driver, which will likely improve the LNG volume growth rate >9%/6% in FY20E/FY21E. Marginally increasing our earnings estimate by 1.1%/2.3% for FY20/21E owing to lower oil prices, slight up-tick in Kochi terminal tariff and increasing other income on higher cash and cash equivalent in books, we maintain HOLD recommendation on the stock with a DCF-based Target Price of Rs296.
Stellar Operating Performance to Continue PLNG processed total LNG volume of 233TBTU in 3QFY20 (+15% YoY and -7% QoQ). Dahej terminal operated at 100% of its expanded capacity and processed 222TBTU (+13% YoY). Kochi terminal handled 11TBTUs of LNG at capacity utilisation of 17.5% (record level). In 3QFY20, stellar operating performance led by rise in India’s overall LNG imports (12% YoY) and increased LNG consumption from City Gas Distribution and fertiliser sector. Further, spot LNG prices were lower (average US$5.73/mmbtu vs. US$9.95/mmbtu in 3QFY19). Global LNG supply in CY19 increased by ~13% YoY led by commissioning of new capacities. Further, ~118MMT of new LNG capacity has already been sanctioned and will get commissioned over the next few years. The lower spot LNG pricing scenario seems to be a new growth driver for PLNG.
Outlook & ValuationDelay in commissioning of Kochi-Mangalore pipeline (by Mar’20 now) and likely downward revision of Kochi regasification tariffs (from Rs104 to Rs79/mmbtu) could impact net profit by ~4%. However, Kochi terminal likely to touch utilisation levels to 30% in FY21. We expect stellar operating performance will lead to 8% CAGR in earnings over FY20E-FY22E. Further, PLNG hiked tariffs by 5% at Dahej and Kochi terminal. At CMP, the stock trades at 12.8x (below long-term 1-yr forward average 15.8x) of FY21 EPS. Further, we expect its RoCE/RoE to improve from 23%/22% in FY19 to 25%/24% in FY21E, as the Company is likely to sustain consistent growth in EBITDA and PAT over the next 2 years. We maintain HOLD recommendation on the stock with a DCF-based Target Price of Rs296.
Share price (%) 1 mth 3 mth 12 mth
Absolute performance 0.5 (4.4) 20.2
Relative to Nifty 2.3 (5.4) 10.2
Shareholding Pattern (%) Sep-19 Dec-19
Promoter 50.0 50.0
Public 50.0 50.0
Key FinancialsY/E Mar (Rs.mn) FY20E FY21E FY22ENet Sales 333,240 336,171 350,155
EBITDA 41,182 47,045 48,787
EBITDA margin (%) 12.4% 14.0% 13.9%
Net Profit 29,510 31,691 33,552
EPS(Rs.) 19.7 21.1 22.4
YoY growth (%) 32% 7% 6%
RoE (%) 25% 24% 22%
RoCE (%) 24% 25% 23%
PER (x) 13.7 12.8 12.1
P/BV 3.5 3.0 2.7
EV/ EBITDA 9.0 7.8 7.5
1 Year Stock Price Performance
Note: * CMP as on February 10, 2020
Quarterly Performance (Standalone)Rs mn 3QFY20 3QFY19 YoY(%) 2QFY20 QoQ(%)Revenue 89,102 100,977 (11.8) 93,611 (4.8)
EBITDA 11,076 8,481 30.6 11,604 (4.6)
EBITDA margins 12.4 8.4 403bps 12.4 3bps
EBIT 9,116 7,444 22.5 9,644 (5.5)
Other income 842 884 (4.8) 975 (13.7)
Finance cost 940 215 336.5 1,051 (10.6)
PBT 9,017 8,113 11.1 8,847 1.9
Net Profit 6,752 5,653 19.4 11,031 (38.8)
Net profit margins 7.6 5.6 198bps 11.8 (420bps)
EPS 4.5 3.8 19.4 7.4 (38.8)
Source: Company, RSec Research
Research Analyst : Yogesh Patil
Contact : (022) 4303 4632
Email : [email protected]
Estimate Change% change FY20E FY21ENet Sales (6.6) (1.8)
Gross Margins 0.9 0.0
EBITDA 1.0 0.0
Net Profit 1.1 2.3
EPS 1.1 2.3
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Petronet LNGOil & Gas | India
Institutional Equity Research
2
CMP* (Rs) 271
Upside/ (Downside) (%) 9
Bloomberg Ticker PLNG IN Target Price: Rs296
HOLD
Exhibit 1: Key Operational TableRs mn 3QFY20 3QFY19 YoY (%) 2QFY20 QoQ (%)Dahej 222.0 197.0 12.7 240.0 (7.5)
Kochi 11.0 5.0 118.7 10.0 10.0
Total LNG Volume 233.0 202.0 15.3 250.0 (6.8)
Source: Company, RSec Research
Conference Call – Key Takeaways f Fall in Dahej terminal’s total re- gasification volume to 222tbtu in 3QFY20 from 240tbtu in
2QFY20 was mainly due to seasonality. Dabhol has started operations post monsoon. The capacity utilisation of Dabhol’s LNG terminal increased to 13.1% for Apr-Nov’19 period vs. 4.8% in Apr-Sept’19 period.
f Dahej is still operating at 100% utilisation level and the management expects it will continue to perform sustain it in 4QFY20E as well. Dahej has taken 5% tariff hike to Rs51.75/mmbtu.
f Tellurian LNG project: Timeline for non-binding agreement is 31st March 2020. The company still evaluating various options of investment for the project. Nothing has been finalised on the same as of now.
f Ras- Gas LNG price negotiation: Efforts are underway to bring down the contracted LNG prices in line with the market price (~US$5/mmbtu).
f Kochi Terminal: Post Mar’20, once the pipeline (Kochi-Mangalore) would be ready, the company expects Kochi terminal’s capacity utilisation to touch 30-35% . Current terminal utilisation is 17.5%. It supplies LNG from Kochi terminal at rate of 3.32mmscmd, out of which BPCL is taking 2.39mmscmd. Re-negotiations at Kochi terminal regasification tariffs are going on and the company is expecting downward revision of tariffs to Rs79.14/mmbtu (from Rs104.5/mmbtu). But, the company is seeking commitment towards volume offloading from the customers to ensure continued cash flow.
f Demand of LNG in Jan’20: As the winter was somewhat warmer, no significant offtake of spot LNG from gas power plants was reported.
f LNG fuel stations: LNG dispensing station requires Rs- 60-80mn. The company has planned to spend Rs1.26bn to set up LNG stations in FY21E. Its cash and cash equivalent stood at Rs46.78bn as of 3QFY20-end.
f Adoption of Ind As 116 has led to decrease in quarterly PBT Rs730mn. The management has given the following break-up during the earnings conference call: (1) Reversal items (positive ) At gross margin level, reversal of lease rental (Rs1.20bn), which the company was taking previously, is not considered now . (2) On the expense side (negative side) Depreciation (Rs890mn) and interest expense (Rs850mn) have been considered as per Ind-As 116 adjustment and Rs180mn reported as forex loss due to the lease liability restatement.
Risks to the View1) Lower-than-expected growth in LNG volume; 2)Lower-than-expected re-gas charges; 3)Any change in priority of domestic gas allocation to sectors; 4)Delay in pipeline commissioning: Kochi -Mangalore.
Petronet LNGOil & Gas | India
Institutional Equity Research
3
CMP* (Rs) 271
Upside/ (Downside) (%) 9
Bloomberg Ticker PLNG IN Target Price: Rs296
HOLD
Exhibit 2: Dahej Terminal volume and capacity utilization Exhibit 3: Kochi Terminal volume and capacity utilization
Source: Company, RSec Research Source: Company, RSec Research
Exhibit 4: PLNG’s Gross Profit Exhibit 5: Petronet LNG’s EBITDA Margins
Source: Company, RSec Research Source: Company, RSec Research
Exhibit 6: Petronet LNG’s PAT Margins Exhibit 7: PLNG’s Dahej Terminal tariff
Source: Company, RSec Research Source: Company, RSec Research
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Petronet LNGCMP* (Rs) 271
Upside/ (Downside) (%) 9
Bloomberg Ticker PLNG IN
Market Cap. (Rs bn) 395
Free Float (%) 50
Shares O/S (mn) 1,500
Oil & Gas | India
Institutional Equity Research
3QFY20 Result Update | February 11, 2020
4
Target Price: Rs296
HOLD
Exhibit 8: PLNG’s Kochi Terminal tariff Exhibit 9: PLNG Gas cost
Source: Company, RSec Research Source: Company, RSec Research
Exhibit 10: Comparitive gas prices with alternate fuel Exhibit 11: Spot LNG price
Source: Bloomberg, BPCL, RSec Research Source: Bloomberg, RSec Research
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Exhibit 13: PLNG 12 month forward P/E valuation (consensus) Exhibit 14: PLNG 12 month forward EV/EBITDA valuation (consensus)
Source: RSec Research, Bloomberg Source: RSec Research, Bloomberg
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Petronet LNGOil & Gas | India
Institutional Equity Research
5
CMP* (Rs) 271
Upside/ (Downside) (%) 9
Bloomberg Ticker PLNG IN Target Price: Rs296
HOLD
Profit & Loss Statement
Y/E Mar (Rs mn) FY18 FY19 FY20E FY21E FY22E
Net Sales 305,986 383,954 333,240 336,171 350,155
Growth (%) 24.3 25.5 (13.2) 0.9 4.2
Cost of Materials 266,902 344,170 285,756 282,696 294,602
Employee costs 912 1,259 1,309 1,388 1,471
Others 5,049 5,592 4,993 5,043 5,295
EBITDA 33,124 32,935 41,182 47,045 48,787
Growth (%) 27.8 (0.6) 25.0 14.2 3.7
EBITDA Margin (%) 10.8 8.6 12.4 14.0 13.9
Depreciation& Amortisation 4,117 4,112 6,382 6,395 7,530
EBIT 29,007 28,822 34,800 40,650 41,256
% chg 30.5 (0.6 20.7 16.8 1.5
EBIT Margin (%) 9.5 7.5 10.4 12.1 11.8
Interest & other Charges 1,630 989 2,789 2,789 571
Other Income 3,174 4,458 3,180 3,694 3,356
Share of JV/ others 326 796 796 796 796
PBT 30,877 33,087 35,987 42,351 44,837
Growth (%)
Tax 9,773 10,782 6,478 10,660 11,286
Tax rate (%) 31.7 32.6 18.0 25.2 25.2
Reported PAT 21,104 22,306 29,510 31,691 33,552
Growth (%) 22.5 5.7 32.3 7.4 5.9
Net Margin (%) 6.9 5.8 8.9 9.4 9.6
Adjusted PAT 21,104 22,306 29,510 31,691 33,552
Reported EPS (Rs) 14.1 14.9 19.7 21.1 22.4
% chg 22.5 5.7 32.3 7.4 5.9
Petronet LNGOil & Gas | India
Institutional Equity Research
6
CMP* (Rs) 271
Upside/ (Downside) (%) 9
Bloomberg Ticker PLNG IN Target Price: Rs296
HOLD
Balance Sheet Statement
Y/E Mar (Rs mn) FY18 FY19 FY20E FY21E FY22E
Shareholder's funds 98,113 102,306 116,815 133,507 152,059
Share capital 15,000 15,000 15,000 15,000 15,000
Reserve and surplus 83,113 87,306 101,815 118,507 137,059
Non-current liabilities 30,730 25,344 30,678 30,678 30,678
LT borrowings 7,334 1,012 6,346 6,346 6,346
DTL (Net) 10,482 13,360 13,360 13,360 13,360
Other LT liabilities 12,836 10,861 10,861 10,861 10,861
LT provisions 78 111 111 111 111
Current liabilities 28,602 24,844 21,544 23,723 24,510
Trade payables 15,699 12,952 11,743 11,618 12,107
Other current liablities 8,314 6,854 4,763 7,067 7,365
Others 4,468 4,870 4,870 4,870 4,870
ST provisions 121 168 168 168 168
Total Liabilities 157,445 152,493 169,037 187,907 207,246
Non-current Assets 87,174 92,875 96,013 114,618 132,087
Fixed assets 82,499 80,133 83,270 101,875 119,345
Non-current investments 2,552 3,289 3,289 3,289 3,289
LT loans and advance 2,123 9,454 9,454 9,454 9,454
Current Assets 70,271 59,618 73,024 73,289 75,158
Current Investments 39,578 8,249 8,249 8,249 8,249
Inventories 4,911 5,694 7,829 7,745 8,071
Trade Receivables 16,505 13,825 12,813 11,152 11,648
Cash and cash equivalents 8,636 29,603 41,885 43,896 44,942
ST loans and advances 93 - - - -
Other current assets 548 2,247 2,247 2,247 2,247
Total Assets 157,445 152,493 169,037 187,907 207,246
Petronet LNGOil & Gas | India
Institutional Equity Research
7
CMP* (Rs) 271
Upside/ (Downside) (%) 9
Bloomberg Ticker PLNG IN Target Price: Rs296
HOLD
Cash Flow Statement
Y/E Mar (Rs mn) FY18 FY19 FY20E FY21E FY22E
Cash flow from operating activities
PBT 30,877 33,087 35,987 42,351 44,837
Adjustments 3,101 983 7,691 7,090 6,346
DDA 4,117 4,112 6,382 6,395 7,530
Others (1,016) (3,130) 1,309 695 (1,185)
WC adjustments 2,947 (4,523) (4,423) 3,924 (35)
Receviable (3,900) 2,183 1,011 1,661 (496)
Loans and Adv. and other assets 99 (3,176) - - -
Inventories 494 (783) (2,135) 84 (326)
Trade payables and other liabil. 6,253 (2,747) (3,300) 2,179 787
Cash from operations 36,924 29,547 39,255 53,365 51,148
Direct taxes paid (6,968) (8,133) (6,478) (10,660) (11,286)
Operating cash flow 29,956 21,414 32,778 42,705 39,862
Cash flow from investing activities (12,776) (715) (8,040) (22,906) (23,244)
Cash flow from financing activities (13,347) (25,476) (12,455) (17,789) (15,571)
Net inc/(dec) in cash and cash eq 3,833 (4,777) 12,283 2,010 1,047
Key Ratios
Y/E Mar FY18 FY19 FY20E FY21E FY22E
Valuation Ratio (x)
P/E 19.2 18.2 13.7 12.8 12.1
P/CEPS 11.0 13.7 10.3 7.6 7.9
P/BV 4.1 4.0 3.5 3.0 2.7
Dividend yield (%) 1.7% 3.7% 3.7% 3.7% 3.7%
EV/Sales 1.3 1.0 1.1 1.1 1.0
EV/EBITDA 12.2 11.4 9.0 7.8 7.5
Per Share Data (Rs)
EPS 14.1 14.9 19.7 21.1 22.4
Cash EPS 20.0 14.3 21.9 28.5 26.6
DPS 4.5 10.0 10.0 10.0 10.0
Book Value 65.4 68.2 77.9 89.0 101.4
Returns (%)
RoCE 22.5 22.6 23.6 24.8 22.6
RoE 21.5 21.8 25.3 23.7 22.1
Turnover ratios (x)
Asset Turnover (Gross Block) 2.1 2.5 2.1 1.9 1.8
Inventory / Sales (days) 6.7 6.0 10.0 10.0 10.0
Receivables (days) 20.7 13.8 15.0 13.0 13.0
Payables (days) 21.5 13.7 15.0 15.0 15.0
Petronet LNGOil & Gas | India
Institutional Equity Research
8
CMP* (Rs) 271
Upside/ (Downside) (%) 9
Bloomberg Ticker PLNG IN Target Price: Rs296
HOLD
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Rating GuidesRating Expected absolute returns (%) over 12 monthsBUY >10%
HOLD -5% to 10%
REDUCE >-5%
PLEASE CLICK HERE FOR PREVIOUS REPORTS
Date Reco CMP TP
30-Oct-19 HOLD 285 296
23-Sept-19 HOLD 253 272
27-Aug-19 HOLD 246 260
08-Aug-19 HOLD 239 260
16-May-19 BUY 224 260
26-Mar-19 BUY 239 263
04-Feb-19 BUY 221 263
22-Jan-19 BUY 218 263
