21 FEB 2017 Quarterly Update

PETRONET LNG BUY

OIL & GAS Target Price: Rs 455

Volumes continue to be firm; BUY

PLNG stated that Gorgon LNG volumes of 1.44 mntpa (currently being CMP : Rs 384
received at Dahej terminal) is over-and-above the already fully Potential Upside : 18%
leased-out volume of 15.75 mntpa. This indicates that utilization of
Dahej terminal will be 100%+ even on expanded capacity of 15 mntpa.
MARKET DATA
Higher/de-risked volumes and mandatory 5% hike in re-gas tariffs will
No. of Shares : 750 mn
drive earnings growth. Maintain BUY with TP of Rs 455. Free Float : 50%
Market Cap : Rs 288 bn
Earnings to double every two years: PLNGs EPS will almost double 52-week High / Low : Rs 411 / Rs 230
every two years till FY20. Large part of the EPS growth has negligible Avg. Daily vol. (6mth) : 2.0 mn shares
risk as it is backed by (a) firm volume off-take contracts backed by Bloomberg Code : PLNG IB Equity
take-or-pay clause and (b) mandatory 5% hike in re-gas tariffs. Valuation Promoters Holding : 50%
at 15x FY18E EPS is attractive given (a) strong EPS growth, FII / DII : 22% / 6%

(b) RoE/RoCE of 24% by FY18, and (b) dividend payout of 30-40%.

Conference call highlights

PLNG received first cargo of Gorgon LNG at Dahej terminal priced at USD 6.5/mnbtu (FoB). From July 17, PLNG
expects to take full off-take of 1.44 mntpa. PLNG has flexibility to divert the Gorgon volumes to Dahej terminal
Torrent Power has stated to start its gas off-take (contracted capacity at 1 mntpa) from Apr 17. The off-take will start
at 15% of contracted capacity to be progressively ramped up
The Board has finalized dividend payout at maximum of 30-40% of PAT or 5% of networth
PLNG has received advances at Rs 14 bn towards capacity expansion from gas off-takers. These advances will be
adjusted against gas off-take over the next 10-15 years
PLNG has availed tax benefit of Rs 600 mn as a claim towards investment allowance reserves, which has led to
lower tax rate at 22%
Mundra LNG terminal is stated to commission in CY17 end whereas, Ennore terminal will take ~1.5 years

Financial summary (Consolidated) Key drivers

Y/E March FY15 FY16 FY17E FY18E (tbtu) FY16 FY17E FY18E
Sales (Rs mn) 395,010 271,334 237,962 254,751 Dahej volume 11.0 14.0 15.5
Adj PAT (Rs mn) 7,502 9,140 16,696 18,792 Kochi volume 0.4 0.3 0.3
Con. EPS* (Rs) - - 20.2 24.2 Dahej mktg mgn (Rs/mnbtu) -ve 25.0 20.0
EPS (Rs) 10.0 12.2 22.3 25.1 Kochi regas mgn (Rs/mnbtu) 69.2 72.7 76.3
Change YOY (%) 5.4 21.8 82.7 12.6
P/E (x) 38.4 31.5 17.3 15.3 Price performance
RoE (%) 14.1 15.2 24.3 23.7 180
Sensex Petronet LNG
160
RoCE (%) 13.4 13.9 23.3 23.9
140
EV/E (x) 22.3 18.9 10.9 9.4 120
100
DPS (Rs) 2.0 2.5 7.8 8.8
80
Source: *Consensus broker estimates, Company, Axis Capital 60
Jan-16 Apr-16 Jul-16 Oct-16 Jan-17

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 21 FEB 2017 Quarterly Update
PETRONET LNG
OIL & GAS

Exhibit 1: Results update

(Rs mn) Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 YoY QoQ
P&L
Sales 51,460 60,653 53,373 66,144 62,993 22% -5%
Raw materials consumed 47,165 54,927 45,768 57,613 55,569 18% -4%
Gross profit 4,296 5,726 7,606 8,531 7,424 73% -13%
Staff cost 229 194 183 180 194 -15% 8%
Other expenditure 908 1,066 998 1,086 1,159 28% 7%
EBITDA 3,159 4,466 6,425 7,264 6,071 92% -16%
Interest 588 576 556 554 517 -12% -7%
Depreciation 807 800 806 860 1,009 25% 17%
Other Income 584 427 494 915 550 -6% -40%
PBT 2,348 3,517 5,556 6,765 5,095 117% -25%
Extraordinary income
Tax 564 1,124 1,777 2,170 1,121 99% -48%
PAT 1,784 2,393 3,779 4,596 3,975 123% -14%
Volumes
Dahej Terminal
Sales (tbtu) 138.2 148.4 165.2 184.4 187.6 36% 2%
Long-term 37.7 109.4 105.3 103.0 107.5 185% 4%
Spot 21.1 12.5 9.9 20.7 4.8 -77% -77%
Tolling 79.5 26.5 50.1 60.7 75.3 -5% 24%
Kochi Terminal
Sales (tbtu) 4.2 5.1 2.9 4.5 3.8 -10% -16%
Source: Axis Capital, Company

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PETRONET LNG
OIL & GAS

Financial summary (Consolidated)

Profit & loss (Rs mn) Cash flow (Rs mn)
Y/E March FY15 FY16 FY17E FY18E Y/E March FY15 FY16 FY17E FY18E
Net sales 395,010 271,334 237,962 254,751 Profit before tax 9,849 12,004 23,851 26,845
Other operating income - - - - Depreciation & Amortisation 3,154 3,216 3,527 3,820
Total operating income 395,010 271,334 237,962 254,751 Chg in working capital (12,377) 17,536 (683) (3,073)
Cost of goods sold (376,109) (250,757) (204,917) (217,881) Cash flow from operations 2,135 30,684 20,411 19,428
Gross profit 18,901 20,578 33,045 36,870 Capital expenditure (8,599) (9,951) (6,449) (1,200)
Gross margin (%) 4.8 7.6 13.9 14.5 Cash flow from investing (8,599) (9,951) (6,449) (1,200)
Total operating expenses (4,511) (4,675) (5,955) (6,607) Equity raised/ (repaid) - - - -
EBITDA 14,390 15,903 27,090 30,263 Debt raised/ (repaid) (128) (931) (1,000) (1,000)
EBITDA margin (%) 3.6 5.9 11.4 11.9 Dividend paid (1,755) (2,194) (6,792) (7,644)
Depreciation (3,154) (3,216) (3,527) (3,820) Cash flow from financing (1,883) (3,125) (7,792) (8,644)
EBIT 11,236 12,687 23,563 26,442 Net chg in cash (8,347) 17,608 6,171 9,584
Net interest (2,935) (2,388) (2,185) (2,120)
Other income 1,548 1,704 2,473 2,523 Key ratios
Profit before tax 9,849 12,004 23,851 26,845 Y/E March FY15 FY16 FY17E FY18E
Total taxation (2,347) (2,864) (7,155) (8,054) OPERATIONAL
Tax rate (%) 23.8 23.9 30.0 30.0 FDEPS (Rs) 10.0 12.2 22.3 25.1
Profit after tax 7,502 9,140 16,696 18,792 CEPS (Rs) 16.0 16.5 27.0 30.1
Minorities - - - - DPS (Rs) 2.0 2.5 7.8 8.8
Profit/ Loss associate co(s) - - - - Dividend payout ratio (%) 17.0 20.5 35.0 35.0
Adjusted net profit 7,502 9,140 16,696 18,792 GROWTH
Adj. PAT margin (%) 1.9 3.4 7.0 7.4 Net sales (%) 4.6 (31.3) (12.3) 7.1
Net non-recurring items 1,323 - - - EBITDA (%) (4.0) 10.5 70.3 11.7
Reported net profit 8,825 9,140 16,696 18,792 Adj net profit (%) 5.4 21.8 82.7 12.6
FDEPS (%) 5.4 21.8 82.7 12.6
Balance sheet (Rs mn) PERFORMANCE
Y/E March FY15 FY16 FY17E FY18E RoE (%) 14.1 15.2 24.3 23.7
Paid-up capital 7,500 7,500 7,500 7,500 RoCE (%) 13.4 13.9 23.3 23.9
Reserves & surplus 49,386 56,264 66,169 77,316 EFFICIENCY
Net worth 56,886 63,764 73,669 84,816 Asset turnover (x) 4.9 3.3 3.0 3.2
Borrowing 35,541 34,610 33,610 32,610 Sales/ total assets (x) 3.4 2.3 1.9 1.9
Other non-current liabilities 7,270 8,710 8,710 8,710 Working capital/ sales (x) - - - -
Total liabilities 99,697 107,084 115,989 126,136 Receivable days 12.4 13.3 10.8 11.0
Gross fixed assets 87,869 89,343 111,162 112,362 Inventory days 8.5 3.5 3.0 7.9
Less: Depreciation (18,443) (21,659) (25,186) (29,007) Payable days 9.2 21.2 17.0 17.0
Net fixed assets 69,426 67,684 85,976 83,355 FINANCIAL STABILITY
Add: Capital WIP 7,469 15,947 576 576 Total debt/ equity (x) 0.7 0.6 0.5 0.4
Total fixed assets 76,895 83,630 86,552 83,931 Net debt/ equity (x) 0.6 0.2 0.1 (0.1)
Total Investment 900 900 900 900 Current ratio (x) 2.9 2.3 3.5 4.4
Inventory 8,826 2,461 1,758 4,886 Interest cover (x) 3.8 5.3 10.8 12.5
Debtors 13,428 9,885 7,060 7,677 VALUATION
Cash & bank 3,641 21,829 27,129 36,824 PE (x) 38.4 31.5 17.3 15.3
Loans & advances 7,493 5,762 4,116 4,188 EV/ EBITDA (x) 22.3 18.9 10.9 9.4
Current liabilities 11,489 17,396 11,535 12,279 EV/ Net sales (x) 0.8 1.1 1.2 1.1
Net current assets 21,903 22,554 28,537 41,305 PB (x) 5.1 4.5 3.9 3.4
Other non-current assets - - - - Dividend yield (%) 0.5 0.7 2.0 2.3
Total assets 99,697 107,084 115,989 126,136 Free cash flow yield (%) (2.2) 7.2 4.8 6.3
Source: Company, Axis Capital Source: Company, Axis Capital

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 21 FEB 2017 Quarterly Update
PETRONET LNG
OIL & GAS

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 21 FEB 2017 Quarterly Update
PETRONET LNG
OIL & GAS

DEFINITION OF RATINGS
Ratings Expected absolute returns over 12-18 months
BUY More than 10%
HOLD Between 10% and -10%
SELL Less than -10%
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