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Saral Gyan Value Picks April 2011
1.
EQUITY RESEARCH REPORT
PETRONET LNG LTD BSE CODE: 532522
NSE CODE: PETRONET
Sector/Industry: UTILITIES CMP: Rs. 132.10 (30/04/2011)
Market Cap: 99075 (Million) Target Price: Rs. 185
Date: April 30, 2011 Time Period: 12 – 18 months
Saral Gyan Capital Services
www.saralgyan.in
An Independent Equity Research Firm
2. VALUE PICKS – APR 2011
TABLE OF CONTENT
S.No Content Page No.
1. Company Background 03
2. Financial Performance 06
3. Investment Rationale 09
4. Risk & Concerns 09
5. Future Outlook 10
6. Saral Gyan Recommendation 11
7. Disclaimer 12
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1. Company Background
Petronet LNG is at the forefront of India's all‐out national drive to
ensure the country's energy security in the years to come.
Formed as a Joint Venture by the Government of India to import LNG
and set up LNG terminals in the country, it involves India's leading oil
and natural gas industry players. Our promoters are GAIL (India)
Limited (GAIL), Oil & Natural Gas Corporation Limited (ONGC), Indian
Oil Corporation Limited (IOCL) and Bharat Petroleum Corporation
Limited (BPCL). The authorized capital is Rs. 1,200 crore ($240
million).
Vision: "To be a key energy provider to the nation by leveraging company’s unique
position in the LNG value chain alongwith an international presence."
Mission
• Create and manage world class LNG infrastructure
• Pursue synergetic business growth opportunities
• Continue excellence in LNG business
• Maximize value creation for the stakeholders
• Maintain highest standards of business ethics and values
LNG
The very concept of Liquefied Natural Gas (LNG) is a response to the inefficiency of
natural gas pipelines and the technical and economic problems of running pipelines over
long distances.
If natural gas is cooled at minus 160.5° C, it becomes liquid and more compact, occupying
just 1/600th of the gaseous volume. This is because most of the heavier hydrocarbons are
removed during liquefaction.
The cargo that is transported in bulk by sea is predominantly methane (over 80%) — a
colourless, odourless, transparent liquid which is non‐toxic, non‐corrosive and less dense
than water. As LNG is highly volatile, specialist operators are involved in its transportation.
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Primary LNG Project / Chain Components are:
i. Upstream development of long‐term natural gas supply for feed gas to an LNG
plant
ii. Downstream development of liquefaction , storage and loading facilities
iii. Marine transportation
iv. Downstream development of receiving terminals for regasification and pipeline
transportation to market
Applications of LNG
Natural Gas is not only efficient, clean, eco‐friendly and flexible in control, it meets many
of the fuel requirements of modern industrial society. LNG's main applications are:
Electricity generation : Fuel for base load and combined cycle/ co‐generation power
plants.
Public and commercial : This clean fuel, which is cheaper than LPG, can be used as piped
gas for households. In the West, most household consumption is accounted for by piped
gas, whose use is increasing rapidly
Industrial : Industrial : Under boiler fuel for steam raising and heating applications.
Alternative motor fuel to diesel : The use of natural gas as fuel for automobiles is
increasing rapidly as it is 30 to 40% more efficient and much cleaner than traditional fossil
fuels. With only one carbon and four hydrogen atoms per molecule, it is the most eco‐
friendly option and is gaining increasing relevance in the age of Global Warming and
Climate Change.
Petrochemicals : Several vital chemical products, e.g. methanol, can be derived from
natural gas.
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LNG Sourcing
• 7.5 MMTPA sourced through
Long Term Contract with
RasGas, Qatar with back to
back sales arrangement with
GAIL, IOCL & BPCL.
• 1.44 MMTPA LNG tied up from
Exxon Mobil’s Gorgon Venture
in Australia.
• Additional LNG being sourced through Spot /Short Term Contracts & sold to
Offtakers/ Bulk Buyers.
LNG Supply: Truck Loading
• Truck Loading facility at Dahej
terminal was commissioned in
August 09, 2007 as a Pilot
Project.
• Currently about 4‐5 trucks are
loaded on daily basis & total of
around 2000 trucks have been
loaded till date.
• Facility can handle 2500
loadings / Yr.
• Presently LNG (by road tanker) is being sold to limited consumers in Western
region.
• Fast developing market with several new consumers (up to 800 KMS) are being
lined up for off‐take of LNG for industrial and city gas use.
Direct Marketing:
Petronet plans to foray into Direct Marketing by focusing on the following areas:
• Entered into direct RLNG marketing by signing HOA with bulk end consumer in
Power producers, Industrial consumers , Fertilizers Producers etc
• LNG/LCNG i.e. LNG through Trucks and supplies at LNG hubs, customer’s premises
in regions not serviced by pipelines.
• LNG/RLNG trading on International and domestic platform
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2. Financial Performance
Petronet LNG net profit rises 112.03% in the March 2011 quarter
Net profit of Petronet LNG rose 112.03% to Rs. 206.28 crore in the quarter ended March
2011 as against Rs. 97.29 crore during the previous quarter ended March 2010. Sales rose
67.10% to Rs. 3985.97 crore in the quarter ended March 2011 as against Rs. 2385.45 crore
during the previous quarter ended March 2010.
FY 2009‐2010 Result Updates:
For the audited full year, net profit rose 53.18% to Rs. 619.62 crore in the year ended
March 2011 as against Rs. 404.50 crore during the previous year ended March 2010. Sales
rose 23.93% to Rs. 13197.29 crore in the year ended March 2011 as against Rs. 10649.09
crore during the previous year ended March 2010
Last 6 Quarters Net Sales & Profit
4,500.00
3,985.97
4,000.00
3,627.64
3,500.00
3,057.72
3,000.00
Rs in Crores
2,525.96
2,500.00 2,244.59 2,385.46
2,000.00
1,500.00
1,000.00
500.00 206.28
83.21 97.29 111.37 131.12 170.84
0.00
1 2 3 4 5 6
Net Sales 2,244.59 2,385.46 2,525.96 3,057.72 3,627.64 3,985.97
Net Profit 83.21 97.29 111.37 131.12 170.84 206.28
Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11
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Current & Expected Earnings:
Income Statement (Rs m)
Year End March 2010 2011 2012E 2013E
Net Revenue 106,491 131,973 183,608 286,337
Raw Material Expenses 96,648 118,012 167,855 264,470
Gross Profit 9,843 13,961 15,753 21,866
Employee Cost 204 306 266 412
Other Expenses 1,174 1,493 1,567 1,645
EBITDA 8,465 12,163 13,920 19,809
Depr. & Amortization 1,609 1,847 1,879 3,932
Net Interest 1,839 1,931 2,030 3,515
Other Income 978 680 850 1,000
Profit before Tax 5,995 9,064 10,860 13,362
Total Tax 1,950 2,868 3,608 4,438
Profit after Tax 4,045 6,196 7,253 8,923
Ex‐Od items / Min. Int. — — — —
Adj. PAT 4,045 6,196 7,253 8,923
Avg. Shares O/S (m) 750.0 750.0 750.0 750.0
EPS (Rs.) 5.4 8.3 9.7 11.9
Key Financial Metrics
Year End March 2010 2011 2012E 2013E
Growth
Revenue (%) 26.3 23.9 39.1 56.0
EBITDA (%) (6.1) 43.7 14.4 42.3
PAT (%) (22.0) 53.2 17.1 23.0
EPS (%) (22.0) 53.2 17.1 23.0
Profitability
EBITDA Margin (%) 7.9 9.2 7.6 6.9
PAT Margin (%) 3.8 4.7 4.0 3.1
RoCE (%) 11.7 14.5 13.5 14.9
RoE (%) 19.2 25.2 24.6 25.1
Balance Sheet
Net Debt : Equity 1.0 1.0 1.1 0.7
Net Working Cap. (days) (2) 1 2 2
Valuation
PER (x) 25.3 16.5 14.1 11.5
P / B (x) 4.6 3.8 3.2 2.6
EV / EBITDA (x) 14.6 10.6 9.9 6.5
EV / Sales (x) 1.2 1.0 0.7 0.4
Earnings Quality
Eff. Tax Rate 32.5 31.6 33.2 33.2
Other Inc / PBT 16.3 7.5 7.8 7.5
Eff. Depr. Rate (%) 4.5 5.1 5.2 5.2
FCFE / PAT (126.6) 168.9 256.2 (299.4)
Source: Saral Gyan Research.
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Quarterly Financials (Rs million)
Year End March Q1FY11 Q2FY11 Q3FY11 Q4FY11
Net Revenue 25,260 30,577 36,276 39,860
EBITDA 2,477 2,716 3,456 3,513
% of revenue 9.8 8.9 9.5 8.8
Depr. & Amortization 461 466 465 455
Net Interest 498 495 507 431
Other Income 126 186 54 314
Profit before Tax 1,644 1,941 2,538 2,941
Total Tax 530 630 830 878
Profit after Tax 1,114 1,311 1,708 2,063
Adj. PAT 1,114 1,311 1,708 2,063
Key Operating Metrics
Year End March 2010 2011 2012E 2013E
Contracted Sales (TBTUs) 280.5 378.6 374.7 374.7
Spot LNG (TBTUs) 103.9 36.2 81.6 126.4
EBITDA/MMBTU 21.2 27.7 28.0 31.2
Source: Saral Gyan Research.
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3. Investment Rationale
i) Petronet LNG has signed deals to source 1.1mt of LNG annually for the next two
financial years. These volumes are on top of 7.5 million tonne per year LNG that the
company will get from RasGas.
ii) While the Kochi terminal is on course to commence operation towards the end of FY13,
Petronet is also evaluating viability for setting up of a regasification terminal on the east
coast.
iii) The company has already spent Rs 900 crores for its capex plan while it further plans Rs
1000‐1200 crore in FY 12.
iv) The company has registered excellent numbers for the quarter ending March 2011.
Revenues surged 112% from a year ago quarter to stay at Rs 39859.7 as against 23854.5
million during the previous quarter ended March 2010. Rise in volumes coupled with
higher realizations brought back the company on a growth trajectory. Net profit of the
company skyrocketed from Rs 972.9 million clocked in Q4FY10 to Rs 2062.8 million in
Q4FY11. EPS stood at Rs 2.75 climbing sharply from Rs 1.3 in Q4FY10.
v) Petronet LNG has reported robust volumes and earnings growth as it benefited from
the reduced domestic natural gas production during last two quarters. Latent demand and
pipeline expansions has helped rise in volume along with some reduction in domestic gas
production. It has sold the entire volume tied up through new deals to end consumers.
4. Risk & Concerns
Decrease in volumes can put pressure on the margins.
Any significant downturn in the LNG demand will impact Petronet LNG earnings
negatively.
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5. Future Outlook
Sector wise projected Gas demand in India:
India’s Current Demand (Optimistic) – Domestic Supply Scenario:
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6. Saral Gyan Recommendation
As per our estimates, Petronet LNG can deliver a turnover of Rs 183,608 million
and PAT of Rs 7,253 million, resulting in EPS of Rs 9.7 in FY 2011‐12. This translates
in a expected PE multiple of 13.6 times based on FY 2011‐12 earnings.
Superior operational performance led by higher volumes and better utilization
rates translated into more than doubling of PAT on YoY basis.
Petronet LNG has recently declared dividend of 20% for financial year 2011.
Dividend yield of Petronet LNG at CMP is 1.32%.
On equity of Rs. 7500 million the estimated annualized EPS works out to Rs. 9.7
and the Book Value per share is Rs. 38.06. At a CMP of Rs. 132.10, stock price to
book value is 3.5.
EBITDA during the quarter stood at Rs3,513 million. However, adjusted for higher
other expenditure during the quarter on account of building a road at Kochi and
painting work at the jetty, EBITDA would have been at Rs3,592 million.
We believe the demand for spot LNG will remain strong in the near term as KG‐D6
gas production remains below 60mmscmd for the next few quarters, directly
benefiting Petronet LNG in terms of better volumes.
Saral Gyan Team recommends “BUY” for Petronet LNG at current market price of 132.10
for a target of Rs. 185 over a period of 12‐18 months.
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