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2QFY2013 Result Update | Oil &Gas

October 19, 2012

Petronet LNG
Performance Highlights
Quarterly highlights (Standalone)
Particulars (` cr) Net Sales EBITDA % margin Net Profit 2QFY13 2QFY12 % chg (yoy) 1QFY13 % chg (qoq)

ACCUMULATE
CMP Target Price
Investment Period
5,367 448 8.4 260 40.7 15.6 (149)bp 20.9 7,030 527 7.5 271 7.4 (1.6) (63)bp 16.2
Stock Info Sector Market Cap (` cr) Beta Net debt (` cr) 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others Abs. (%) Sensex PLNG 3m 8.1 14.6 1yr 10.3 2.8 50.0 7.9 24.2 17.9 3yr 8.5 125.8 Oil & Gas 12,660 0.7 5,300 180/122 214,349 10 18,682 5,684 PLNG.BO PLNG@IN

`169 `183
12 Months

7,549 518 6.9 315

Source: Company, Angel Research

For 2QFY2013, Petronet LNG (PLNG) reported a strong growth in its net profit on account of high marketing margin on its short-term contracts. We recommend Accumulate rating on the stock. RLNG volumes flat yoy: During 2QFY2013, PLNGs R-LNG volumes were flat at 135TBTU. The contractual volumes stood at 90TBTUs, while spot cargo and tolling volumes stood at 45TBTUs. The average realization improved by 39.7% yoy to `555/mmbtu. Therefore, net sales increased by 40.7% yoy to `7,549cr.

Higher costs mutes bottom-line growth: The EBITDA/mmbtu increased


15.7% yoy to `38.4 mainly on account of higher margins from spot cargoes; however, the EBITDA margin declined by 149bp yoy to 6.9% in 2QFY2013. Other expenditure also increased by 52.9% yoy to `80cr. Hence, despite a higher growth in net sales, the EBITDA increased by only 15.6% yoy to `518cr. Other income increased by 23.1% yoy to `25cr, while the tax rate also increased to 32.3% in 2QFY2013, compared to 30.8% in 2QFY2012. Hence, the net profit grew by only 20.9% yoy to `315cr. Outlook and valuation: PLNG is well-poised to benefit from the gas demandsupply mismatch in the country. It has also lined up aggressive capex plans to increase capacity from 10.0mn tonne to 17.5mn tonne over the coming three years. The stock is currently trading at 11.2x FY2013E and 11.1x FY2014E EPS. Valuing the stock at 12.0x FY2014E earnings, we derive a target price of `183 and recommend an Accumulate rating on the stock.

Key financials (Standalone)


Y/E March (` cr) Net sales % chg Net Profit % chg EPS (`) OPM (%) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2011 13,197 23.9 620 53.2 8.3 9.2 20.5 4.7 25.2 18.6 1.1 11.8

FY2012 22,696 72.0 1,058 70.7 14.1 8.1 12.0 3.6 34.1 25.4 0.6 8.0

FY2013E 30,077 32.5 1,135 7.3 15.1 6.6 11.2 2.8 28.4 23.9 0.5 6.9

FY2014E 33,570 11.6 1,145 1.0 15.3 6.3 11.1 2.3 23.1 21.7 0.4 6.0

Bhavesh Chauhan
Tel: 022- 39357600 Ext: 6821 Bhaveshu.chauhan@angelbroking.com

Vinay Rachh
Tel: 022- 39357600 Ext: 6841 vinay.rachh@angelbroking.com

Please refer to important disclosures at the end of this report

Petronet LNG | 2QFY2013 Result Update

Exhibit 1: 2QFY2013 Performance Highlights


` cr. Net sales COGS % of Net sales Operating expenditure % of Net sales Total expenditure % of Net sales EBIDTA % of Net sales Interest Depreciation Other income Profit before tax % of Net sales Provision for tax % of PBT Net Profit % of Net sales
Source: Company, Angel Research

2QFY13 7,549 7,065 93.6 80 1.1 7,144 94.6 518 6.9 32 47 25 465 6.2 150 32.3 315 4.2

2QFY12 5,367 4,814 89.7 52 1.0 4,866 90.7 448 8.4 46 46 20 376 7.0 116 30.8 260 4.9

yoy % 40.7 46.8 52.9 46.8 15.6 (30.9) 0.9 23.1 23.5 29.3 20.9

1QFY13 7,030 6,433 91.5 71 1.0 6,504 92.5 527 7.5 33 46 27 405 5.8 134 33.1 271 3.9

qoq % 7.4 9.8 12.5 9.9 (1.6) (3.9) 1.7 (6.9) 14.8 11.9 16.2

1HFY13 14,579 13,497 92.6 150 1.0 13,648 93.6 1,045 7.2 65 93 51 870 6.0 284 32.7 586 4.0

1HFY12 9,990 8,947 89.6 104 1.0 9,051 90.6 939 9.4 92 92 43 749 7.5 232 30.9 517 5.2

yoy % 45.9 50.9 44.4 50.8 11.3 (30.0) 0.7 18.9 16.2 22.7 13.3

RLNG volumes flat yoy: During 2QFY2013, PLNGs R-LNG volumes were flat at 135TBTU. The contractual volumes stood at 90TBTUs, while spot cargo and tolling volumes stood at 45TBTUs. The average realization improved by 39.7% yoy to `555/mmbtu. Therefore, net sales increased by 40.7% yoy to `7,549cr.

Exhibit 2: Sales volume trend


120 100 80 90 90 100 99 87 86 98 94 91 90

Exhibit 3: Net sales growth trend


8,000 7,000 6,000 49 47 5,000 4,000 3,000 2,000 1,000 0 3,057 4,623 5,367 3,941 6,330 6,375 7,030 7,549 25.0 20.0 15.0 10.0 5.0 -

(tbtu)

42

40 20 0 6 10

20

27

36

45

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

Contracted LNG Sales

Spot Cargo and tolling volumes sales

Net sales (LHS)

yoy growth (RHS)

Source: Company, Angel Research

Source: Company, Angel Research

Higher costs mute bottom-line growth


The EBITDA/mmbtu increased 15.7% yoy to `38.4 mainly on account of higher margins from spot cargoes; however, the EBITDA margin declined by 149bp yoy to 6.9% in 2QFY2013. Other expenditure also increased by 52.9% yoy to `80cr. Hence, despite a higher growth in net sales, the EBITDA increased by only 15.6% yoy to `518cr. Other income increased by 23.1% yoy to `25cr, while the tax rate also increased to 32.3% in 2QFY2013, compared to 30.8% in 2QFY2012. Hence, the net profit grew by only 20.9% yoy to `315cr.

October 19, 2012

2QFY13

(%)

60

46

(` cr)

3,628

Petronet LNG | 2QFY2013 Result Update

Exhibit 4: EBITDA and EBITDA margin trend


600 500 400 346 272 351 441 448 566 423 457 518 12.0 10.0 8.0

Exhibit 5: Net profit and net margin trend


350 300 250 206 171 131 256 260 296 245 315 271 6.0 5.0 4.0

(` cr)

(` cr)

(%)

300 200 100 -

6.0 4.0 2.0 0.0

150 100 50 -

2.0 1.0 0.0

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

EBITDA (LHS)

EBITDA margin (RHS)

Net profit (LHS)

Net margin (RHS)

Source: Company, Angel Research

Source: Company, Angel Research

October 19, 2012

2QFY13

(%)

200

3.0

Petronet LNG | 2QFY2013 Result Update

Investment arguments
Capacity additions to drive volume growth: PLNG plans to double its capacity at the Kochi terminal to 5mn tonne by FY2013, while its second jetty at Dahej terminal is expected to be commissioned by 4QFY2014. LNG import model viable going ahead: We believe LNG is likely to be a key source of gas supplies in the medium term on account of strong gas demand in the country. Hence, PLNG is a proxy play on the increasing gap between natural gas supplies and demand in the country. The decline in production from KG D6 basin has further helped the matters. Moreover, the government is making efforts to maintain long-term viability of LNG in the overall gas mix of the country.

Outlook and valuation


PLNG is well-poised to benefit from gas demand-supply mismatch in the country. It has also lined up aggressive capex plans to increase capacity from 10.0mn tonnes to 17.5mn tonnes over the coming 3 years. The stock is currently trading at 11.2x FY2013E and 11.1x FY2014E EPS. Valuing the stock at 12.0x FY2014 earnings, we derive a target price of `183 and recommend Accumulate rating on the stock.

Exhibit 6: Angel EPS forecast vs. consensus


Year FY2013 FY2014
Source: Company, Angel Research

Angel forecast (%) 15.1 15.3

consensus (%)

Variation (%) 7.3 3.9

14.1 14.7

Exhibit 7: Recommendation summary


Companies Ind. Gas GSPL CMP (`) 254 79 TP (`) Neutral Neutral Reco Mcap Upside (` cr) 3,525 5,359 P/E (x) 10.2 9.3 9.1 10.7 P/BV (x) 2.4 1.6 2.0 1.4 EV/EBITDA (x) FY13E 5.0 5.5 3.8 5.6 RoE (%) 25.5 23.3 23.6 18.1 RoCE (%) 27.8 21.5 28.2 17.6 (%) FY13E FY14E FY13E FY14E FY14E FY13E FY14E FY13E FY14E

Gujarat Gas Petronet LNG

297

Neutral Accum.

3,934 12,660

15.5 11.2

13.4 11.1

4.1 2.8

3.7 2.3

8.3 6.9

8.8 6.0

28.7 28.4

29.0 23.1

29.5 23.9

25.9 21.7

169 183

Source: Company, Angel Research

Company Background:
PLNG was formed in 1998 by the Government of India as a joint venture between oil and gas PSUs namely HPCL, IOCL, GAIL and ONGC who own 12.5% equity stake each in the company. It was formed to facilitate import of LNG in India. It started its operations in 2004 and the company currently has a regasification and LNG import terminal at Dahej in Gujarat with 10.0mn tonne p.a. capacity while a second one in Kochi with 5.0mn tonne p.a. capacity is under construction and will be ready by end of FY2013.

October 19, 2012

Petronet LNG | 2QFY2013 Result Update

Exhibit 8: One-year forward P/E


300 250 200
(`)

150 100 50 0
Feb-08 Sep-07 Oct-09 Nov-06 May-09 Nov-11 Dec-08 Aug-10 Mar-10 Sep-12 Jun-06 Jan-06 Apr-07 Jan-11 Jun-11 Apr-12 Jul-08

5x

8x

11x

14x

17x

Source: Company, Angel Research

October 19, 2012

Petronet LNG | 2QFY2013 Result Update

Profit & loss statement (Standalone)


Y/E March (` cr) Gross sales Less: Excise duty Net Sales Other operating income Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2009 FY2010 FY2011 FY2012 8,429 8,429 8,429 28.6 7,527 7,376 20 132 901 4.1 10.7 103 799 4.6 9.5 101 77 9.9 774 8.2 774 256 33.0 518 518 518 9.2 6.2 6.9 6.9 9.2 10,649 10,649 10,649 26.3 9,803 9,665 20 117 846 (6.1) 7.9 161 686 (14.2) 6.4 184 98 16.3 599 (22.5) 599 195 32.5 404 404 404 (22.0) 3.8 5.4 5.4 (22.0) 13,197 13,197 13,197 23.9 11,981 11,801 31 149 1,216 43.7 9.2 185 1,031 50.4 7.8 193 68 7.5 906 51.2 906 287 31.6 620 620 620 53.2 4.7 8.3 8.3 53.2 22,696 22,696 22,696 72.0 20,867 20,587 30 250 1,829 50.4 8.1 184 1,645 59.5 7.2 177 85 5.5 1,553 71.3 1,553 495 31.9 1,058 1,058 1,058 70.7 4.7 14.1 14.1 70.7 FY2013E 30,077 30,077 30,077 32.5 28,084 27,731 40 313 1,993 9.0 6.6 215 1,778 8.1 5.9 182 98 5.8 1,693 9.1 1,693 559 33.0 1,135 1,135 1,135 7.3 3.8 15.1 15.1 7.3 FY2014E 33,570 33,570 33,570 11.6 31,440 31,018 47 375 2,129 6.8 6.3 287 1,842 3.6 5.5 235 102 6.0 1,710 1.0 1,710 564 33.0 1,145 1,145 1,145 1.0 3.4 15.3 15.3 1.0

October 19, 2012

Petronet LNG | 2QFY2013 Result Update

Balance sheet (Standalone)


Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Long Term Provisions Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Long term loans and adv. Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 1,975 506 1,469 1,847 304 1,810 658 78 1,074 892 917 4,537 3,550 667 2,883 1,318 539 1,222 340 152 729 901 321 5,061 3,554 851 2,702 2,012 1,165 211 1,358 157 105 1,095 1,440 (82) 6,021 3,557 1,035 2,521 3,290 140 154 3,098 984 115 1,998 2,290 808 6,921 6,157 1,251 4,906 1,490 140 154 4,733 1,970 115 2,648 3,452 1,281 7,979 7,557 1,538 6,019 490 140 154 5,968 2,897 115 2,956 3,741 2,227 9,038 750 1,233 1,983 2,282 272 4,537 750 1,485 2,235 2,500 326 5,061 750 1,930 2,680 2,989 348 4 6,021 750 2,770 3,520 3,034 363 5 6,921 750 3,727 4,477 3,134 363 5 7,979 750 4,687 5,437 3,234 363 5 9,038 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

October 19, 2012

Petronet LNG | 2QFY2013 Result Update

Cash flow statement (Standalone)


Y/E March (` cr) Profit before tax Depreciation Change in WC Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2009 FY2010 FY2011 FY2012 774 103 (338) (73) (266) 199 (788) 246 69 (473) 704 (132) 572 299 359 658 599 161 303 (45) (164) 854 (1,047) (234) 45 (1,236) 218 (154) 65 (317) 658 340 906 185 (242) 142 (218) 844 (749) (626) 59 (1,316) 716 (153) (274) 289 (183) 340 157 1,553 184 1,926 (59) (484) 1,238 (1,098) (17) 1,135 20 41 (174) (299) (432) 826 157 984 FY2013E 1,693 215 513 (559) 1,863 (800) (800) 100 (177) (77) 986 984 1,970 FY2014E 1,710 287 (19) (564) 1,413 (400) (400) 100 (186) (86) 927 1,970 2,897

October 19, 2012

Petronet LNG | 2QFY2013 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total Assets Per Share Data (Rs) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT/Int.) 0.7 1.5 7.9 0.7 1.9 3.7 0.6 1.4 5.3 0.5 1.0 9.3 0.2 0.5 9.8 0.0 0.1 7.8 4 10 22 28 4 4 10 20 28 4 4 7 19 20 (3) 6 8 17 16 (7) 6 10 18 24 (5) 5 11 20 30 (4) 20.0 49.5 28.8 14.3 29.9 19.2 18.6 37.2 25.2 25.4 46.6 34.1 23.9 51.6 28.4 21.7 37.3 23.1 9.5 67.1 2.7 17.5 3.5 0.8 28.8 6.4 67.5 2.7 11.9 5.2 0.8 17.2 7.8 68.4 3.0 15.9 4.8 0.7 23.9 7.2 68.1 4.3 21.2 4.0 0.3 27.1 5.9 67.0 5.1 20.2 4.0 0.1 22.3 5.5 67.0 11.4 42.1 4.9 0.0 42.8 6.9 6.9 8.3 1.8 26.4 5.4 5.4 7.5 1.8 29.8 8.3 8.3 10.7 1.8 35.7 14.1 14.1 16.6 1.9 46.9 15.1 15.1 18.0 2.0 59.7 15.3 15.3 19.1 2.1 72.5 24.4 20.4 6.4 1.0 1.7 15.5 3.1 31.3 22.4 5.7 1.0 1.3 16.9 2.8 20.5 15.8 4.7 1.1 1.1 11.8 2.4 12.0 10.2 3.6 1.1 0.6 8.0 2.1 11.2 9.4 2.8 1.2 0.5 6.9 1.7 11.1 8.8 2.3 1.3 0.4 6.0 1.4 FY2009FY2010 FY2011 FY2012 FY2013E FY2014E

October 19, 2012

Petronet LNG | 2QFY2013 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Petronet LNG No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

October 19, 2012

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