Petronet LNG (PLNG) reported Q3FY22 Ebitda of Rs 17.3 bn (+29.7% y-o-y/+33.6% q-o-q) ahead of our estimate due to high marketing margin (~2.2x y-o-y), partially offset by muted volumes (-11.5% y-o-y).
Highlights: (i) Dahej terminal logged muted utilisation of 86.4%. PLNG refrained from giving Q4 guidance given high and volatile spot LNG. Recent start of the Kochi-Mangalore pipeline will lift Kochi terminal utilisation to 35% by FY22-end and to 60% by FY24, once the Bangalore leg is connected. (ii) We perceive risk to 5% p.a. Kochi tariff hike in the long term as 15–20mtpa of upcoming new LNG capacities are nearly 2x demand growth. (iii) PLNG plans a foray into LNG retailing—1,000 outlets by FY25 at Rs 80 bn capex, a long-haul prospect.
Modest performance; reasonable outlook: Muted volumes at 4MMT (-11.5% y-o-y, -13.3% q-o-q) were primarily a result of high spot LNG prices, which jumped ~5x y-o-y, and Covid-led restrictions. Notably, spot LNG is currently at ~$30/mmbtu (flat q-o-q), which would keep a check on volumes in Q4FY22 as well. Due to a surge in spot LNG prices, PLNG earned a higher marketing margin of $11.8/mmbtu (~2.2x y-o-y). Dahej terminal volume fell 11.7% y-o-y and Kochi terminal volumes fell 7.7% y-o-y.
Aggressive expansion target; execution awaited: Management expects Kochi volumes to rise to 5mmscmd by Jun-22 and Kochi sales to likely double to peak utilisation of 35% once customers fully offtake gas along the recently commissioned Kochi-Mangalore pipeline. They expect Dahej expansion to 20mtpa by FY24 and to 22.5mtpa by FY27. It is also in the process of adding two tanks at Dahej at Rs 12 bn and a jetty at Rs 17 bn by FY25, which will be value-accretive. The company has tied up with Gujarat Gas to set up five LNG stations between Mumbai and Delhi highways. Besides, it has set up four LNG stations with IOC and one each with IGL and Sabarmati Gas.
Outlook: Risk-reward priced in
We continue to believe there is limited scope for further sharp tariff hikes in the long term given significant upcoming LNG capacity. Maintain ‘HOLD/SN’ with a revised TP of Rs 240 (earlier: Rs 248) at 8.8x FY23e PER led by lower near-term volumes visibility.