We retain our ‘buy’ rating on Petronet LNG Ltdwith a 12-month DCF-based target of Rs 155 (earlier Rs 165) noting inexpensive valuations at 10.3x FY15e EPS and healthy growth in profitability despite assuming slower ramp-up in utilisation in the medium term. We have modelled tariffs of Dahej terminal at Rs 42.6 per million BTU from CY16e onwards, tariffs of Kochi terminal at Rs 71.8 per million BTU from CY16e onwards and lower long-term marketing margins at $0.4 million BTU. Our assumptions yield a reasonable 18% CROCI for the company in the long term, which factors in potential regulatory risks to LNG business.
We revise our EPS estimates to Rs 9.3, Rs 10.7 and Rs 13.4 for FY14e, FY15e and FY16e, respectively, from Rs 10.4, Rs 12 and Rs 15.7 previously to reflect Q3 results, lower volumes in the medium term, modestly higher operating costs and other minor changes.
Petronet’s net income at Rs 136 crore (-25% sequential) was below our estimated R150 crore led by lower spot LNG volumes. While subdued utilisation of Kochi terminal led to erosion of profitability in the near term, certainty on full utilisation of Dahej terminal (post-expansion) through tolling contracts has secured growth prospects for the long term. The company reported ebitda at Rs 350 crore (-4% q-o-q, -34% y-o-y), lower than our estimated Rs 400 crore led by a continued weakness in spot LNG volumes and higher-than-expected other expenditure. LNG re-gasification volumes remained stable sequentially at 123.6 trillion BTUs versus 122.9 trillion BTUs in Q2 of FY14 and 140.6 trillion BTUs in Q3 of FY13.