Maintain ‘reduce’ on Petronet LNG and cut our DCF-based target price to R152 per share (earlier R169). A modest RoE of 12% does not justify a high P/BV of 2.1x FY16e, especially as there is no visibility of higher utilisations. At the current price, the stock trades around P/E of 13x FY17e.
Petronet Q4FY15 profit before tax of R130 crore declined 45% y-o-y and 41% q-o-q, as self-spot trading volumes at Dahej fell 32% q-o-q and trading margins crashed into the red (-R30 per mmbtu). Pricing anomalies between long-term and spot LNG (long-term at 2x spot) caused severe cuts in volume off-take, forcing PLNG to defer 10% of RasGas contracted FY15 volumes, during the quarter. The company has received a favourable income tax assessment order and will now avail benefits under section 80IA of the IT Act, for the next five years. As highlighted by us, there is now a material risk to Dahej’s long-term volumes offtake, while the resultant inventory pile-ups will impact spot LNG sales. Therefore, we cut Petronet’s FY16e long-term and spot LNG volumes by 7% each, have lowered tax rates to MAT and lowered FY16e/17e EPS by 4%/8%.
Petronet will now avail 80IA benefits under IT act and therefore pay MAT in the near-future. The current quarter includes R130 crore (one-off) retrospective tax benefits, and reported profit of R30 crore therefore surged 78% y-o-y.
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