Stock Update

Inventory loss marred earnings; volume growth outlook remains intact

Key points
Petronet LNG
ŠŠ Operating profit impacted by inventory
Reco: Buy | CMP: Rs225 loss and higher operating expenses; Dahej
utilization flat q-o-q at 104%: Petronet LNG’s
(PLNG) Q4FY2019 reported operating profit
Company details
dropped by 24% y-o-y and 26% q-o-q to
Price target: Rs270 Rs. 627 crore. The decline was primarily the
result of an inventory loss of Rs. 119 crore and
Market cap: Rs33,683 cr
a rise in operating expenses (up 28% y-o-y
52-week high/low: Rs255/202 and 44% q-o-q) due to forex fluctuations. The
NSE volume: (No of shares) 27.9 lakh
management has highlighted that the inventory
loss is notional and could be reversed with
BSE code: 532522 a rise in the spot liquefied natural gas (LNG)
NSE code: PETRONET prices in the coming quarters. Adjusting for the
inventory loss, operating profit stood at Rs. 746
Sharekhan code: PETRONET crore, declining by 9.2% y-o-y and 12% q-o-q.
Free float: (No of shares) 75.0 cr The number was lower than our estimate due to
higher opex and a marginally lower utilisation
rate of 103.6% at Dahej terminal (versus our
Shareholding pattern assumption of 105%). Re-gas volumes at Dahej
terminal declined by 4.3% y-o-y (and were
flat q-o-q) to 198 trillion British thermal units
Others (tBtu), slightly lower than our estimate of 201
13% tBtu. Kochi terminal volumes stood at 7 tBtu (up
DII 19.5% y-o-y and 40.2% q-o-q). Adjusted PAT
11% Promoters was flat y-o-y and dropped 8% q-o-q to Rs.
50% 520 crore. It was also lower than our estimate
on account of lower-than-expected operating
FII
profit, partially offset by higher-than-expected
26%
other income and lower-than-expected interest
cost and effective tax rate.
ŠŠ Dahej expansion, Kochi-Mangalore pipeline
Price chart work is on track to be completed by June-
2019: The management has indicated that
400
the capacity expansion to 17.5 mmt at Dahej is
350 on track to be completed by June 2019. The
300
management has highlighted that construction
work on Kochi-Mangalore pipeline section is
250
also likely to be completed by June 2019 and
200 could drive up utilisation at the Kochi terminal
to 25-30%. PLNG also plans to add two storage
150
tanks and a jetty at Dahej in the next three
100 years, which would increase capacity at the
May-18

Jan-19

May-19
Sep-18

Dahej terminal to 19.5 mmt. The company is

also eyeing investment opportunities in the
upstream sector in the US and an LNG terminal
Price performance
if the company is able to transport gas at $6/
(%) 1m 3m 6m 12m mmBtu to India. The company has guided for a
capex of ~Rs. 600 crore for FY2020E and Rs.
Absolute -1.8 8.9 9.4 16.7
1,300 crore for FY2021E excluding capex for
Relative to Sensex 3.0 4.9 3.7 10.4 international projects (company yet to firm up
capex).

May 16, 2019 6

Sharekhan Stock Update

ŠŠ Outlook – Strong volume growth outlook
backed by Dahej expansion and Kochi ramp-
up: Expansion of Dahej terminal’s capacity to
17.5 mmt and ramp-up of the under-utilised
Kochi terminal after completion of construction
work on the Kochi-Mangalore pipeline section
by June 2019 are key volume growth drivers
for PLNG in H2FY2020E and FY2021E. We
conservatively assume that the Dahej would
take some ramp-up time and, thus expect
the terminal to operate at full utilisation by
Q3FY2020E on expanded capacity. On the
other hand, we expect the utilisation at the
Kochi terminal to gradually ramp up to 30%
in FY2021E. Thus, we expect volumes to
clock an 8% CAGR during FY2019-FY2021E.
Additionally, with spot LNG prices hovering at
$5-6/mmBtu, gas demand could increase and
PLNG could witness higher spot volumes and
increase in marketing margins once the Dahej
expansion is completed.
ŠŠ Valuation – Maintain Buy with unchanged
price target of Rs. 270: We largely maintain
our earnings estimates for FY2020 and
FY2021 as our volume growth assumption
remains unchanged with key projects being
on schedule. We maintain our Buy rating with
an unchanged price target of Rs. 270 given
earnings growth visibility (expect 10% CAGR
over FY2019-FY2021E), robust RoE of 24-26%
and attractive valuation of 12x FY2021E EPS.
Moreover, in the absence of any significant
capex in FY2020E, PLNG may surprise with
dividend payout similar to the FY2019 level of
70% and this could result in a dividend yield of
~5% at CMP.
ŠŠ Key risks: Delays in capacity expansion at
Dahej and lower-than-expected utilisation rate
at the Kochi terminal.

Results Rs cr
Particulars Q4FY19 Q4FY18 y-o-y (%) Q3FY19 q-o-q (%)
Net Sales 8,383 8,636 -2.9 10,098 -17.0
Total Expenditure 7,756 7,814 -0.7 9,250 -16.1
Reported operating profit 627 822 -23.7 848 -26.0
Adjusted operating profit 746 822 -9.2 848 -12.0
Other Income 151 103 46.4 88 71.2
Interest 23 33 -32.7 22 4.5
Depreciation 102 101 0.3 104 -2.0
Reported PBT 655 791 -17.2 811 -19.3
Exceptional income/(expense) -119 0 0
Adjusted PBT 774 791 -2.2 811 -4.7
Tax 214 268 -20.1 246 -12.9
RPAT 440 523 -15.8 565 -22.1
Adjusted PAT 520 523 -0.5 565 -8.0
Equity Cap (Rs. cr) 150 150 150
Reported EPS (Rs) 2.9 3.5 -15.8 3.8 -22.1
Adjusted EPS 3.5 3.5 -0.5 3.8 -8.0
Margins (%) BPS BPS
Adjusted OPM 8.9 9.5 -62 8.4 50
Effective tax rate 32.7 33.9 -116 30.3 242
Adjusted NPM 6.2 6.1 15 5.6 61
Source: Company data; Sharekhan Research

Operating performance
Particulars Q4FY19 Q4FY18 y-o-y (%) Q3FY19 q-o-q (%)
Capacity utilisation – Dahej (%) 103.6 108.2 -460 103.0 52
Capacity utilisation – Kochi (%) 11.1 9.3 180 7.9 317
Total volume (TBTU) 205.1 212.7 -3.6 202.0 1.5
Long term volume – Dahej 100.0 115.0 -13.0 109.0 -8.3
Tolling volume – Dahej 91.0 84.7 7.4 84.0 8.3
Spot volume – Dahej 7.0 7.1 -1.4 4.0 75.0
Total Dahej volume 198.0 206.8 -4.3 197.0 0.5
Long term volume - Kochi 7.1 5.9 19.5 5.0 40.2
Spot volume - Kochi 0.0 0.0 0.0
Total Kochi volume 7.1 5.9 19.5 5.0 40.2
Source: Company data; Sharekhan Research

May 16, 2019 7

Sharekhan Stock Update

Valuations (Standalone) Rs cr
Particulars FY17 FY18 FY19 FY20E FY21E
Revenue 24,616 30,599 38,395 46,791 51,817
Operating profit 2,592 3,312 3,429 3,957 4,435
OPM (%) 10.5 10.8 8.9 8.5 8.6
Adjusted PAT 1,706 2,078 2,291 2,502 2,797
% YoY growth 86.8 21.8 10.3 9.2 11.8
Adjusted EPS (Rs) 11.4 13.9 15.3 16.7 18.6
P/E (x) 19.7 16.2 14.7 13.5 12.0
P/B (x) 4.2 3.5 3.3 3.2 3.1
EV/EBITDA (x) 12.4 8.9 8.7 7.5 6.8
RoNW (%) 23.2 23.3 23.2 24.4 26.1
RoCE (%) 22.8 26.3 27.3 30.2 32.6
Source: Company data; Sharekhan estimates

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

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