Fw: Annual Report Analysis - Petronet LNG - BUY

 

Petronet LNG: Tracking project execution – BUY CMP Rs123, Target Rs173, Upside 40.4% Growth potential of Petronet LNG (PLNG), over the medium term, is linked to the execution of its ongoing projects especially the second jetty at Dahej and the Kochi terminal. Over the longer term, execution of the Gangavaram project will also be keenly watched given the delays witnessed in Kochi project. In its FY13 annual report, PLNG has given detailed information on the status of these projects and has also provided outlook on international and domestic LNG markets. We believe, the company is well poised to see a strong growth in revenues and profitability in the medium term as relative affordability of LNG will improve post the gas price hike. We maintain our BUY recommendation with a reduced target price of Rs173. Projects going on schedule except some delays at Kochi The overall progress achieved for the second jetty at Dahej terminal is at 70% and is likely to be commissioned by Q1 CY14. The Kochi Terminal after seeing substantial delays is likely to be commissioned by July/August 2013, initially with FACT & Kochi Refinery consumers. For expansion of regasification capacity at Dahej, PLNG has completed pre-qualification of prospective bidders for selection of contractors for the lump sum EPC contracts. For the Gangavaram terminal, a binding term sheet with Gangavaram Port has been signed and the option of early commencement of supplies through a Floating Storage and Re-gassification Unit (FSRU) is being evaluated. With the objective to achieve the strategic goal of developing storage and re-gassification capacity of 30mtpa by 2020, PLNG is keeping provision for further enhancement of Dahej Terminal from 15mtpa to 20mtpa. Return ratios decline but balance sheet and cash flows gain strength During FY13, PLNG saw a decline in return ratios with RoE decreasing by 537bps yoy, RoCE falling 88bps yoy and RoA dropping 136bps yoy. Nevertheless, both RoE and RoCE remained comfortably over the 20% mark. During FY13, PLNG saw a 45% jump in operating cash flows and saw second consecutive year wherein operating cash flows exceeded capital expenditure requirements. Balance sheet gained further strength with gross debt/equity improving to 0.6x from 0.9x and net debt/equity falling to 0.3x from 0.6x.

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Warm Regards, Amar Ambani