Petronet LNG’s (PLNG) Q4FY19 Ebitda of Rs 6.3 bn came 20% below estimate; however, adjusted for `1.2 bn inventory loss, Ebitda belied estimate only 4.5%.
Key highlights: (1) volumes, at 3.9 MMT, came 1.4% below estimate due to lower off take by power producers. Utilisation of the Dahej/Kochi terminal was 101.8%/ 10.9% (estimated 104.0%/9.0%) (2) inventory loss has reversed partly (`0.3 bn) with spot LNG prices rising 28% to $5.3/mmBtu since Q4FY19. This should reflect in Q1FY20; and (3) Dahej expansion (2.5MTPA) & Kochi-Mangalore pipeline (5MTPA) will start from July 2019, leading to volume growth of 12% in FY20.
We are revising down TP 4% to `219 (`228 earlier) as we revise up our opex assumptions based on current run rate, leading to 4.5% cut in FY20/FY21E EPS. Maintain ‘hold’.
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Expanded capacity at Dahej is slated to start from July 2019 with 1.5MTPA of the 2.5MTPA incremental capacity booked by off takers. With the collapse of spot LNG prices, management is debating whether these new volumes should be sold on spot or long-term contracts.
The Kochi-Mangalore pipeline will commence from July 2019, doubling utilisation to 20% for the Kochi terminal and adding 0.5MTPA to volumes. PLNG has doubled dividend payout in FY19 to 70%, translating in to 4.4% dividend yield based on current price. While we have assumed payout to rise to 80% from FY20, this is subject to new investment proposals – Bangladesh and Sri Lanka regas terminals and investment in US liquefaction.
Net cash stands close to `30 bn with capex guidance of `6 bn for FY20. A scenario where spot LNG prices sustain at current level of $5.5/mmbtu makes spot regas capacity more attractive compared to Dahej, which imports oil-linked LNG.
We believe, valuation at 3.4 FY20E PBV fairly reflects risk-reward. We maintain ‘HOLD/SP’ with revised TP of `219/share.